The Reluctant British Consumer Is a Problem for Keir Starmer

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(Bloomberg) – For British consumers who are still steering from the first budget in the Labor Party, warns the word monitoring.

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The figures showed last week that pessimism is the collapse and families looking to reduce their expenses, for example by eating abroad instead of eating last week. Inflation is the recovery and fear of escalating job losses. The so -called excessive savings that was built during the epidemic has also been a victim of the increase in brutal prices since then.

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It is a bleak picture of Prime Minister Kiir Starmer and his workers' government, which swept the authority in July and promised to raise the standard of living. Instead, the economy is smaller on the basis of everything, and the work slides in opinion polls. The alarm bells are also carried out at the Bank of England, where political makers called this month to reduce interest rates by a half percent.

In the United Kingdom, an attempt to raise the economy and generate tax revenues affect the need without the consumer is a hard conflict, as their spending represents two -thirds of GDP.

Treasury Advisor Rachel Reeves has announced her plans to manufacture growth through great spending on housing and infrastructure. But for many workers, the focus is more urgent. Will they have a job or get an increase in salaries after April when their employers reach an increase of 26 billion pounds (32.9 billion dollars) for salary tax and another significant increase in the minimum wage?

“Weakness in spending reflects both factors and costs,” said Jessica Hinds, director of economics research in Fitch. “We are now facing the labor market, with companies demanding employees to decline. This will be concerned about families given the large shocks that have reached their personal money over the past five years.”

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For some, hope is that caution will give way to confidence while dispelling uncertainty and low interest rates.

Wages rise faster than prices, so living levels improve. Families are now sitting on more than 2 trillion pounds of savings, an increase of nearly a third since the end of 2019. However, this increase barely keeps up with consumer prices. Just amendment, rotate only 5 % than prenatal, long -term luxury trends.

“The idea that consumers have a lot of savings awaiting unleashing once confidence is a wrong name,” said Raul Robarel, director of the Boston Consulting Group.

The least -paid jobs are the strongest wage growth, according to data from already. However, the poorest families are likely to use additional money to cover basic bills and pay debts instead of spraying in estimated items.

Meanwhile, excessive savings are generally attached to the richer families, which “less likely to spend and instead seen as a wealth store,” Hindes said. “Although bank deposits have increased significantly, the family sector will not feel a great improvement.”

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The confidence of the consumer decreased last year when the work government warned of “difficult” decisions to fill a financial black hole inherited by the conservatives. The tax increase of 40 billion pounds later in the October budget was worse than he was afraid. Many of them were targeting companies, which are now looking to reduce the number of employees and raise prices to protect their margins.

The economy grew by only 0.1 % at the end of 2024, due to government spending. The spending of consumers was flat, and the gross domestic product of one person for the second quarter in a row. Now the British are facing increased geopolitical uncertainty and a new wave of pressure from high energy and food costs. GFK found families to save their money more than indulging in the main purchases this month.

“Many families in Britain do not have enough savings to expand the cash flow shocks,” said Molly Brom, chief economist at the Research Center at the Resolution Foundation.

Families have become more economical in recent years. They spend less in real terms on the elements that have seen prices rise during the epidemic such as bread or facilities, and to turn into cheaper alternatives elsewhere, for example by buying more personal care elements instead of going to hair salons, according to official data.

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At the same time, housing costs consume a greater share of profits, leaving less available to be spent in stores and restaurants. The new tenants spend about a third of their total income on the rent, an increase of about a quarter of between 2019 and 2023. About a third of the firm -price real estate mortgages are assigned to higher costs, according to BOE estimates.

In the Bank of England, anxiety about the state of the British consumer came from an unexpected quarter of this month. Catherine Man, until then its falcon, surprised the markets through the opposition from the majority of the Monetary Policy Committee in favor of reducing the average rate of half a point. In a speech in the wake of her dramatic key, she said that the consumer reservations are likely to keep the request defeated after 2025.

“The dynamics of soft sales sizes, which have already been observed for a year, will remain high because home savings rates are high, as a continuous preventive measure against fluctuations in the purchase force and then due to the increasing unemployment interests.”

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