The Deloitte Consumer Tracker Q1 2019
Keep calm and carry on
Confidence remains steady
UK consumer confidence edged up in Q1 2019, according to data from the Deloitte Consumer Tracker. Our consumer confidence index rose by one percentage point to -8 per cent from -9 per cent in the previous quarter. Positive economic news helped to restore consumers’ confidence in their own personal finances. However, Deloitte’s overall consumer confidence index remains close to one-and-a-half year low. This suggests that it will not only take longer for positive economic news to restore consumer confidence to previous levels, but could also require greater certainty around how and when the UK leaves the EU.
Deloitte consumer confidence index
Net % of consumers who said their level of confidence has improved in the past three months
Light at the end of the tunnel?
This quarter’s improvement of the overall confidence index compared to Q4 2018 was due to a rise in sentiment in four of our six confidence measures.
Confidence in levels of disposable income and sentiment about levels of debt grew by five and four percentage points respectively compared with the previous quarter. Falling inflation, rising real wages and unemployment at historical low have bolstered consumers’ confidence in their personal finances. In particular, improved sentiment about levels of disposable income suggests that wages rising at their fastest pace for a decade in 2018 are starting to have a positive impact on consumers. Meanwhile, increasing confidence in debt levels coincided with household borrowing easing since the start of 2019, a sign that consumers have become more measured in their borrowing. According to the Bank of England, growth in consumer borrowing dropped to 6.3 per cent in February, the slowest rate since 2014. Consumer spending has been fuelling Britain’s economic expansion since the June 2016 Brexit referendum. Consumer spending has grown since the vote despite imported inflation reducing real wages until the autumn, meaning households had to either borrow more or dip into their savings. This slowdown in borrowing raises concerns about the sustainability of consumer spending in the months to come.
Similarly, there has been little change in confidence among CFOs according to the latest Deloitte Survey of UK Chief Financial Officers. Of those surveyed, 13 per cent say they are more optimistic about the prospects for their company than they were three months ago, compared to 10 per cent in Q4 2018. Many CFOs priced in a tougher environment at the start of the year. They went into March braced for tough times and the latest round of Brexit uncertainties have not materially changed that picture, given that all exit scenarios, including no-deal, remain on the table.
Meanwhile the strength of the labour market also drove up consumers’ confidence in job security, which saw a one-percentage-point increase this quarter. By contrast, a two-percentage-point fall in sentiment about job opportunities and career progression highlights that concerns about a possible weakening of the job market post-Brexit remain.
The modest rise in consumer confidence about their personal finances has not yet translated into households splashing out. This might be because consumers are cautious as they anticipate tougher times ahead. A recent GfK consumer survey showed that consumers’ expectations for the general economic situation over the next 12 months are 14 points lower than in March 2018. Inflation was stronger than expected in February and is set to rise further over the next couple of months given a planned lift in the utility price cap in April and increasing food prices due to higher import prices.
This quarter, while consumers have maintained their levels of spending in the essential categories, they have started to reduce their expenditure in some of the more discretionary categories. Overall, net spending on essentials remained flat (at 12 per cent) but discretionary spending was down five percentage points (to -6 per cent from -1) compared to the previous quarter. This drop in spending in discretionary categories was partly due to the seasonal effect following the Christmas golden quarter. However, the year-on-year fall in spending seen on big-ticket items such as major household appliances was more pronounced indicating a more cautious consumer attitude to spending in non-essential categories. Spending on some essentials categories such as housing, transport or utilities was up this quarter but that rise was offset by a fall in grocery spending which slowed this quarter as sign of consumers trading down or buying less.
These results contrast with exceptionally strong retail sales in March when sales rose by 4.4 per cent compared to a year earlier. On a quarterly basis UK consumers bought 3.9 per cent more than in the same period of 2018, according to the Office for National Statistics. The bounce back in March was due milder weather which boosted sales in the food and clothing categories as well as stronger online shopping results.
We expect overall consumer spending to continue to grow in the first half of 2019, but at a slower pace. Consumers are likely to limit spending as the benefits of stronger real wage growth are offset by concerns about the possible implications of Brexit, which could include slower jobs growth, gradual interest rates rises and subdued house price growth. However, such a scenario could change and will ultimately be dependent on the manner in which the UK exits the EU and its timing.
- Q4 2018 - A worried nation
- Q3 2018 - Loss of momentum
- Q2 2018 - Confidence on the up as consumers defy expectations
- Q1 2018 - Consumer confidence rises, underlying caution remains
- Q4 2017 - Consumers continue to show resilience in the second half of 2017
- Q3 2017 - Consumer confidence recovers after three continuous quarters of decline
- Q2 2017 - Consumer confidence falls to its lowest level in over two years
- Q1 2017 - Consumer confidence softens
- Q4 2016 – Consumer confidence remains undented