The Deloitte Consumer Tracker Q1 2021

Highest jump in confidence on record

Consumer confidence saw its highest jump for ten years following the announcement of a road map for lifting COVID-19 restrictions, the chancellor’s renewed support for workers and the vaccination programme remaining on track. The Deloitte Consumer Confidence Index* rose by six percentage points quarter on quarter to – 11%, representing the highest rate of growth in the ten-year history of the Deloitte Consumer Tracker.

Consumer confidence on a strong upward trajectory as optimism returns

Interviewed late in March, two weeks after pupils were able to return to school and a few days before households could start socialising with more people outside, consumers seemed to have a spring in their step as overall confidence grew by six percentage points quarter on quarter to -11%. Although confidence has not quite yet returned to pre-COVID levels, it gained seven points compared to the same period a year ago, its highest ever recorded yearly growth.



* Deloitte’s overall confidence index is the aggregate of six individual measures: levels of disposable income, levels of debt, job security, job opportunities and career progression, children’s education and welfare, and general health and wellbeing.

Confidence in personal finances highest ever recorded

In a sign of the tide turning, all measures of confidence saw significant growth this quarter. While all measures recorded growth this quarter, two measures stand out as having sustained growth throughout the last year. Both optimism surrounding debt and disposable income reached new highs in Q1 2021.

Limited spending opportunities and the government extending its support to workers into the autumn have given a further boost to consumers’ personal finances. As a result, consumer confidence about their household levels of disposable income jumped by a significant 17 percentage points year on year to -10% the highest level recorded for that measure. Similarly, confidence about levels of debt rose by eight percentage points compared to the same period a year ago, and at 1.5% is at its highest since the Tracker began in 2011. Combined with near record levels of savings, these results suggest that if consumers continue to be confident about their income, they could spend that extra cash and become the driving force for growth as the economy reopens. Indeed, the easing of restrictions and the continued roll out of the vaccine programme is expected to unleash pent-up demand for non-food categories, leisure and travel services.

However, our data suggests that aggregate savings rates hide substantial inequalities. Back in January, when asked whether their level of personal savings had changed since February 2020, nearly a third of consumers (31%) said their savings had increased but nearly the same proportion (29%) reported that their savings had decreased. Those who reported an increase were more likely to have a net household income of £50,000 (43%), while those whose savings had decreased were more likely to have a net household income of less than £25,000 (38%). Those who have kept working in stable jobs have maintained their incomes while their spending declined and those in more vulnerable sectors have often had to rely on borrowing to buy essentials. This means that it is largely the higher income earners, i.e. consumers with a lower propensity for additional spending, who hold most of the 'involuntary' accumulated savings. By contrast, consumers on lower incomes, who were disproportionately affected by the pandemic, have a higher propensity for additional spending. The question remains as to how many of those who benefited from the job retention scheme will return to a job as the economy reopens.

Our data on consumer sentiment about job security and work opportunities might offer an answer. Confidence about job security rose by six percentage points to -9% compared to Q4 2020 and sentiment around job opportunities and career progression gained seven percentage points to -12% over the same period. Encouragingly, recruiters have been reporting the strongest rebound in permanent hiring for six years in March.1 The latest Deloitte CFO survey also points to businesses becoming upbeat with CFOs’ expectations for hiring reaching their highest level in nearly six years. A sustained recovery in hiring will be crucial if the UK is to rebound from the pandemic. While the unemployment rate is currently at 4.9%, it has not risen as sharply as might have been expected and many will be wondering what will happen once government support is removed.

The strong jump in our overall confidence index is also due to the improvement surrounding health and wellbeing, and consumers’ sentiment about their children’s education and welfare. These two measures are closely correlated to the waves of the pandemic and subsequent lockdowns, and, following the announcement of the progressive easing of the latest lockdown, they have now risen by eight and six percentage points, respectively, compared to Q4 2020.

Confidence in the state of the economy bounces back

Aside from the six measures included in our confidence index, in Q1 2021 consumer sentiment around the state of the UK economy bounced back 12 percentage points to -61% bringing the measure closer to its pre-COVID baseline. Despite the strong jump in sentiment about the health of the economy, consumer sentiment seems to be lagging business sentiment. CFO perceptions of uncertainty have plummeted from the record levels seen a year ago. According to the latest Deloitte CFO survey, 46% of CFOs now rate the level of external financial and economic uncertainty as high or very high, down from 71% the previous quarter. This is partly due to the improving public health picture and greater certainty about the UK’s post-Brexit relationship with the EU. Brexit has dropped sharply as a source of risk to businesses from the top positions it has held on the CFO risk list since the EU referendum. Close to 10% of CFOs, of the predominantly large companies on the survey panel, have experienced significant or severe disruption to their businesses due to Brexit. However, they believe interruptions will fade, with only 3% expecting similar levels of disruption in a year's time.

CFOs also expect a strong recovery in the second half of this year following the planned reopening of the economy. A majority, just under 60%, report that demand for their businesses’ products and services has already returned to pre-pandemic levels or will do so by the end of this year. Of course, whether a strong recovery materialises is heavily predicated on the continued suppression of the virus.

Small increase in discretionary spending despite lockdown

In an encouraging sign that consumers are preparing for an easing of lockdown restrictions, discretionary spending grew this quarter albeit by one percentage point. While net spending in most of the discretionary categories remains below where it was a year ago, on a quarterly basis there was strong growth in demand for holidays and categories related to socialising such as going out and eating out.



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1UK labour market shows strongest rebound in hiring since 2015 | Financial Times (ft.com)

Outlook

While the widely discussed recovery is predicated on a sustained reopening of the economy and the continued suppression of the virus, the strong level of optimism consumers have indicated should translate into increased consumer activity into Q2 2021. According to our data, for the first time since our survey began, net spending in discretionary categories is expected to become positive and to exceed net spending on essential categories. A positive score means the number of consumers expecting to spend more is greater than the number expecting to spend less.

Consumers are expected to spend more in the categories that coincide with the reopening of the economy and returning to work. Categories such as transport, clothing and beauty are all expected to grow in Q2 2021. In further proof of consumers’ eagerness to spend, 63% said they would be returning to shops within one month of the restrictions being lifted. Moreover, in Q2 2021 our data shows that overall confidence will return to pre-COVID levels and could even reach a record high. Indeed, with the furlough scheme extended, the strength of the vaccine rollout and the road map out of lockdown, it would be surprising not to see these numbers materialise as we head into the summer.

Key contacts

Simon Oaten

Partner, Hospitality & Leisure

Ben Perkins

Head of Consumer Research

Céline Fenech

Research Manager

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