UK consumer confidence slumps as inflation fears revive cost-of-living pressures

British households are once again tightening their belts as fears over inflation and rising living costs hammer consumer confidence. A PwC survey found confidence fell sharply amid concerns about higher food, fuel and energy prices, with many consumers planning to cut spending. The renewed squeeze on real incomes reflects the knock-on effects of rising oil prices and global instability, while inflation remains above the Bank of England’s target. With households driving less, spending cautiously and saving where possible, the UK economy risks weaker aggregate demand — proof that when confidence catches a cold, the high street usually sneezes.

UK households bracing for new cost of living crisis, report finds | UK cost of living crisis | The Guardian

1. Using an AD/AS diagram, explain how rising energy and food prices could affect inflation and real GDP in the UK economy.

2. Discuss the likely impact of falling consumer confidence on the UK economy.

3. Evaluate whether monetary policy is likely to be effective in dealing with the UK’s renewed cost-of-living pressures and help restore consumer confidence.