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Slow return of consumer confidence but inflation must fall for recovery to gather pace

30 April 2012

  • Job security and debt concerns ease, but lack of disposable income continues to hit spending;
  • Fewer people trading down, but consumers still cautious;
  • Discretionary categories continue to bear the brunt of cutbacks with essential spend on the rise.

Consumer sentiment shows tentative signs of improvement but a lack of disposable income is preventing a sustained recovery in the consumer economy, according to the latest Consumer Tracker, from business advisory firm Deloitte.  Compared to the last quarter, fewer people are pessimistic about job security (18% vs. 24%) and the ability to manage personal debt (22% vs. 25%), but 51% of people are downbeat about their household’s disposable income, a slight increase on 49% in the last quarter.

The tracker shows signs of a slightly reduced focused by consumers on money-saving tactics such as buying cheaper products and bargain hunting.  Yet the report shows, as yet, no evidence that consumers are more willing to go back to more free spending habits such as impulse purchases or buying more products.  

Trading down, which has been prevalent since the start of the economic crisis in 2008, shows some signs of easing: of those consumers who reported spending less this quarter, 27% did so through buying cheaper products, compared with 32% in the last quarter and 40% three months prior to that.

Ian Stewart, chief economist at Deloitte, said: “Consumers remain cautious, albeit slightly less so than at the end of last year.  There are some, very tentative signs that the slump in consumer sentiment may be bottoming out.  Consumers feel slightly more comfortable with their personal balance sheet but there has been a huge shift in the British consumer’s attitude to debt from being very permissive to out of fashion.  

“For consumers to spend more, disposable incomes need to improve.  Wages are unlikely to see much growth this year, so the big hope is that sharply lower inflation will support consumer spending power.  If inflation drops in the second half of this year, the UK consumer should see some modest growth.  Yet the UK consumer remains vulnerable to events, particularly an intensification of the euro crisis or further rises in oil and energy prices.”

Perhaps inevitably given the pinch on disposable income, discretionary items remain the focus of consumer cutbacks.  37% of consumers say they spent less on going out (cinema, theatre, concerts) over the last quarter, whilst the same proportion are cutting back on clothing and footwear.  Utility, grocery and transport bills continue to drain what little disposable income consumers have, with 51% spending more on gas, water and electricity whilst 44% of people spent more on food shopping and transport costs.

Nigel Wixcey, UK head of consumer business at Deloitte, said: “Whilst the first signs of recovery are starting to show, the GDP figures published last week will provide a psychological blow to both consumer and business confidence.  To a degree, consumers and businesses are behaving similarly by protecting and strengthening their reserves and waiting for a more certain recovery before splashing the cash.  

“Despite all this uncertainty, the consumer economy is looking a little brighter this year than last.  This may not be saying much, but we are at least moving in the right direction.”

Ends

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The information contained in this press release is correct at the time of going to press.

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