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Consumer Confidence in the UK: The Deloitte Consumer Tracker Q2 2019

Signs of a consumer slowdown

July 2019

At a glance

  • UK consumer confidence is unchanged in Q2 2019 at -8 per cent, according to the latest Deloitte Consumer Confidence Index. 
  • However our confidence measure remains 4 points lower than it was a year ago as Brexit uncertainty has acted as a drag on consumer sentiment. 
  • Sentiment in levels of household disposable income stays flat while confidence in levels of debt have fallen 3 percentage points. Both measures are also significantly lower than they were a year ago, having lost 5 and 4 percentage points respectively. 
  • The downtrend in personal finances sentiments show that, despite strong earnings and jobs data, consumers are wary of elevated economic uncertainty and potential risks to UK growth. 
  • In addition, confidence in job security declined, albeit by 1 point, and is 3 points lower than in Q2 2018 highlighting concerns about a possible weakening of the job market post-Brexit.
  • Overall, net spending on essentials is down 3 percentage points (at 10 per cent) but discretionary spending is up 1 percentage point (to -5 per cent) compared to the previous quarter. On a net basis consumers claim to be spending less on utilities, groceries, housing and communication service providers. However, there has been an increase in the number of people claiming to be spending more in leisure categories including going out, restaurants and hotels, and holidays.
  • Consumer spending has been fuelling Britain’s economic expansion since the June 2016 Brexit referendum, however, consumers have little capacity to deal with another rise in prices or an increase in unemployment if businesses start to reduce hiring post-Brexit. 
  • The question remains as to how long consumers will be willing ─ or indeed able ─ to keep spending.

Deloitte consumer confidence index

UK consumer confidence is unchanged in Q2 2019 at -8 per cent, as Brexit uncertainty has acted as a drag on consumer sentiment.

Confidence is flat in Q2 2019 and still 4 points lower than a year ago

UK consumer confidence is unchanged in Q2 2019 at -8 per cent, according to the latest Deloitte Consumer Confidence Index. The UK consumer has been particularly resilient since the EU referendum. Consumers have continued to borrow and spend supported by record low unemployment and rising real incomes. However our confidence measure remains 4 points lower than it was a year ago as Brexit uncertainty has acted as a drag on consumer sentiment.1

By contrast, business optimism continues to track downwards, according to the latest Deloitte Survey of UK Chief Financial Officers. A net 35 per cent of CFOs are more pessimistic about the financial prospects for their company than they were three months ago. Furthermore, CFO sentiment about the long-term effect of Brexit is more negative than at any time since the EU referendum with 83 per cent of CFOs expecting the business environment to deteriorate as a result of the UK leaving the EU.

Signs of a North-South divide

This quarter the Tracker is also pointing to a clear difference in the trajectory of confidence in the north compared to the south. Respondents in the north saw their confidence grow by 3 points to -7 per cent while confidence of respondents in London and the south east fell 2 points to -9 per cent. There certainly was a shift in the house prices since the 2016 referendum with property values falling in London and the south east while prices in the rest of the UK rose with Wales and Scotland accelerating the fastest.2 The boost in confidence in the north has also coincided with the Northern Powerhouse reaching a five-year milestone which has resulted in £13 billion investment in transport and the creation of 287,000 jobs.

Strong economic fundamentals may not be enough to support consumer confidence

Are falling inflation, rising real wages and unemployment at historical lows sufficient to bolster consumers’ confidence in their personal finances? A downtrend in personal finances sentiments show that, despite strong earnings and jobs data, consumers are wary of elevated economic uncertainty and potential risks to UK growth. Sentiment in levels of household disposable income remains flat while confidence in levels of debt has fallen 3 percentage points. Both measures are also significantly lower than they were a year ago, having lost 5 and 4 percentage points respectively.

In addition, confidence in job security declined, albeit by 1 point, and is 3 points lower than in Q2 2018 highlighting concerns about a possible weakening of the job market post-Brexit. According to the latest Deloitte CFO Survey, almost two-thirds (62 per cent) of CFOs expect to reduce hiring in the next three years as a result of Brexit – the highest level since 2016. In contrast, a 4-percentage-point increase in sentiment about job opportunities and career progression, a more volatile measure in our Tracker, coincides with the official number of people resigning from 1 job to take another being at its highest level in 18 years. This could be due to structural changes taking place in the labour market with the job market becoming more ‘fluid’ but less secure, given zero hour contracts and the gig economy.

hand reaching toward pin machine

Consumers continue to support the economy but for how much longer?

This quarter, while consumers have reduced their expenditure in some of the more essential categories, they have increased their levels of spending in the discretionary categories compared to the previous quarter. Overall, net spending on essentials is down 3 percentage points (at 10 per cent) but discretionary spending is up 1 percentage point (to -5 per cent) compared to the previous quarter. On a net basis consumers claim to be spending less on utilities, groceries, housing and communication service providers. However, there has been an increase in the number of people claiming to be spending more in leisure categories including going out, restaurants and hotels, and holidays. Consumers are also spending more on clothing and footwear, and major household appliances. There is an element of seasonality in this trend with spring always coinciding with less expensive energy bills, people updating their wardrobes for the summer or spending on home improvements. The leisure sector is also being supported by lower prices in the recreation and culture sector and cheaper transport costs.

However, while the year-on-year fall in spending seen on the essential items has been driven by lower inflation, it also indicates a more cautious consumer attitude to spending in categories such as groceries, as seen by the performance of the discounters compared with the bigger grocers.

These results are in contrast with the latest retail sales results. Retail sales in June grew to 4.3 per cent compared to a year earlier. On a quarterly basis, UK consumers bought 4.1 per cent more than in the same period of 2018, according to the Office for National Statistics. This encouraging return to growth in June was due to growth in non-food categories in particular clothing which performed well after contracting for several months.

Consumer spending has been fuelling Britain’s economic expansion since the June 2016 Brexit referendum. Until recently with real wages not growing, households had to either borrow more or dip into their savings to spend. According to the Bank of England, growth in consumer borrowing dropped to 5.6 per cent in May, the slowest rate since 2014, yet other recent official data shows that consumers spent more than they earned for a record tenth consecutive quarter during the first three months of 2019. On a cash basis, they put just 1 per cent of their income into savings compared with about 4 per cent before the referendum. This slowdown in borrowing and saving raises concerns about the sustainability of consumer spending in the months to come. Consumers have little capacity to deal with another rise in prices or an increase in unemployment if businesses start to reduce hiring post-Brexit as indicated in the latest Deloitte CFO Survey.

woman listening on mobile phone

Outlook

With little prospect of the economy improving, the question remains as to how long consumers will be willing ─ or indeed able ─ to keep spending. Our third quarter Tracker results, due towards the end of October, could provide a clearer indication of the direction of consumer sentiment.

About the Consumer Tracker

The Deloitte Consumer Tracker is based on a consumer survey carried out by independent market research agency, YouGov, on Deloitte’s behalf.

This survey was conducted online with a nationally representative sample of more than 3000 UK adults aged 18+ between 26 and 31 June 2019.

A note on the methodology

Some of the figures in this research show the results in the form of a net balance. The means that in a survey of 100 respondents, assume that 30 reported they are spending more, 50 reported no change and 20 reported they are spending less. The net balance is calculated by subtracting the number that report they spent less from the number that reported they spent more i.e. 30 – 20 = 10. This means 10% of consumers reported that they spent more rather than less.

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