British consumer confidence has fallen to its lowest level in nearly 50 years amid the cost of living crisis, a survey has found, fueling fears the economy could slide into recession in 2022.

Britain’s consumer confidence index fell 2 percentage points to minus 40 in May, its lowest since records began in 1974, research firm GfK said in a report on Friday.

The survey measures how people view the state of their personal finances and the broader economic outlook. Joe Staton, director of client strategy at GfK, said: “Consumer confidence is now weaker than in the darkest days of the global banking crisis, Brexit’s impact on the economy or the shutdown. of Covid.”

Falling confidence reflects soaring inflation, which hit a 40-year high of 9% in April, driven by rising energy prices after Russia invaded Ukraine .

Linda Ellett, head of UK consumer markets at KPMG, said that “as prices and rates rise, consumers’ ability to spend declines.”

Throughout last year, consumer spending supported the UK’s pandemic recovery, but record levels of consumer confidence raised the risk of a recession, defined as two consecutive quarters of falling output .

Samuel Tombs, an economist at Pantheon Macroeconomics, noted that when the GfK consumer confidence index fell below minus 30, “household spending fell” and “recession ensued”.

The UK’s economic recovery had already stalled in February and March and the Bank of England expects the economy to alternate between near-stagnation and contraction over the next two years as economic output is not expected to change. significantly before the first quarter of 2024.

Declining consumer confidence is the first sign that the UK economy is experiencing a long period of economic stagnation coupled with historically high inflation, a combination commonly referred to as stagflation.

The UK has not seen such a combination of divergent price and activity trends since the 1970s.

Sandra Horsfield, an economist at Investec, said that despite the accumulation of household savings during the pandemic, a squeeze on discretionary spending seemed “inevitable”. She added that this was especially true for poorer households, which have fewer savings and tend to allocate a larger share of their income to food and energy.

GfK data, based on interviews conducted in the first half of May, showed that the proportion of people choosing not to make important purchasing decisions increased, with confidence levels falling more than least. 39 predicted by economists polled by Reuters. Perceptions of personal finances and the broader economy have also deteriorated.

The drop in consumer confidence was reflected in several sectors. Shopping and leisure outings are down 11% from pre-pandemic levels, according to data from Google Mobility.

In the second week of May, credit and debit card spending on discretionary items, such as clothing and furniture, was down 14% from pre-pandemic levels, according to data from the BoE.

A survey by the Office for National Statistics showed that in the first half of May more than half of respondents had cut back on non-essential spending and energy consumption due to the rising cost of heating. life.

Earlier this week, official data showed unemployment in the UK had fallen to the lowest rate in almost 50 years and there were more vacancies than first-time job seekers never recorded. The tight labor market adds to the risk of higher and more persistent inflation as rising prices feed into wage negotiations and the wider economy.

As a result, markets expect the Bank of England to raise rates to 2% by the end of the year, from 1% currently. This would mean higher borrowing costs for businesses and households on top of soaring prices.

“The outlook for consumer confidence is bleak and nothing on the economic horizon shows reason for optimism anytime soon,” GfK’s Staton said.