A government minister has aimed to sustain public optimism regarding the UK economy and spending, amidst concerns that interest rate increases and a challenging Budget could diminish confidence. This follows a period where consumer confidence saw a boost in the months since Andy Burnham became Prime Minister, with the UK economy recording around one per cent growth in the first half of the year.
However, analysts at AJ Bell have warned of a potential decline in sentiment due to a less positive growth outlook for the remainder of the year. This includes anticipated spikes in energy costs and potential impacts on mortgages from higher interest rates.
Pat McFadden, the Work and Pensions Secretary, stated that the upcoming Budget would enhance confidence among households and businesses. He told the Financial Times that Chancellor John Healey would approach the Budget responsibly, aiming to convey that the government is stable and Britain is a favourable place for investment and business growth.
Despite consumer confidence reaching a two-year high in September, as revealed by GfK, analysts are concerned that surging inflation could hinder further gains. Dan Coatsworth of AJ Bell noted that improvements in survey data could benefit Prime Minister Burnham ahead of the Budget, but cautioned that this positivity could dissipate if the Budget introduces tax changes or if high oil prices lead to increased borrowing costs and rising prices for goods and services.
Further market pessimism was indicated by Morgan Stanley, which adjusted its economic forecasts. The Wall Street bank now predicts two consecutive 25 basis point interest rate hikes in November and February, expecting these to coincide with a slowdown in growth early next year. Bruna Skarica and Fabio Bassanin, bankers at Morgan Stanley, cited recent Middle East newsflow as making it challenging for the Bank of England to maintain a prolonged hold on rates.
Professor David Miles, a member of the Office for Budget Responsibility, suggested on Thursday that the public's expectations regarding state services, not aligned with reduced resources due to poor productivity, contribute to the UK's public debt issues.