Fears over interest rate rise and jobs send UK consumer confidence to three-year low

UK consumer confidence has plummeted to a three-year low, as fears of rising mortgage payments and job insecurity grip British households, according to a recent survey. The S&P Global consumer sentiment index slipped to 42.7 in September, down from 42.9 in August, signaling "a notable strain on financial confidence across UK households."

Chancellor John Healey faces a challenging budget before the upcoming month, with the possibility of tax increases to counter rising government borrowing costs. The conflict in the Middle East has exacerbated the situation, leading to higher borrowing costs and concerns among consumers about future interest rate hikes.

Over half of the 1,500 respondents to the survey expressed concern over potential increases in borrowing costs, and mortgage rates have surged to multi-year highs, with the average two-year fixed residential mortgage rate reaching 5.88%, the highest since April 2026. Additionally, the threat of artificial intelligence and employers' cautious hiring practices have contributed to a decline in consumer confidence in the jobs market, which has hit its lowest level in three-and-a-half years.

Mortgage costs have risen by about £150 per month for the average homeowner, based on a £250,000 loan over 25 years, since March 2026. The average direct debit for monthly mortgage payments has increased from £600 to £900 over the past four years. Economist Maryam Baluch from S&P Global Market Intelligence noted that a downbeat mood is spreading across UK households as the renewed worries about energy prices, the cost of living, and job prospects overshadow the positive sentiment surrounding the new government.

Factors such as rising volatility in energy markets due to Middle East tensions and a steady decline in payrolled employees have contributed to this cautiousness about financial prospects, posing potential downside risks to the broader economic outlook.

The British Chamber of Commerce has urged the government to provide extra support for businesses, citing a series of tax increases over the past two years and a decline in planned investments by businesses. Only 17% of surveyed companies are planning to increase investment in the coming months, a post-pandemic low. Chancellor Healey may need to take "difficult decisions" on the economy to keep it on track, while Liberal Democrat leader Ed Davey has called for fuel duty cuts to alleviate the burden of rising petrol and diesel prices.