The Deloitte Consumer Tracker Q4 2019

A ray of hope?

The Deloitte consumer confidence index* at around -9 per cent recorded a slight gain in Q4 2019 (0.5 per cent) compared to the previous quarter and the same period a year ago. Despite expecting a seasonal downturn in confidence, we are actually entering 2020 with higher levels of confidence than a year ago.

Marginal gain

The fact that confidence has remained more or less flat is encouraging in Q4 2019, as historically the Tracker has recorded a fall in confidence at this time of year. ​The clear result of the December UK General Election lifted some of the uncertainty that had been pervasive since the 2016 referendum and could have also boosted consumer confidence. Our survey, which took place during the first weekend of January 2020, indicates that over the last three months consumer confidence in the state of the UK economy strengthened from -55 per cent in Q3 2019 to -28 per cent in Q4 2019.

Sentiments over personal finances and job market grow stronger

Although official data show that wage growth has started to slow since August, earnings remain solid after hitting a decade high in July, and with inflation falling to its lowest level in three years in December (1.3 per cent), these results have bolstered consumers’ confidence in their levels of disposable income. Sentiment about household disposable income has improved by a significant five percentage points compared to a year ago and by three percentage points compared to the previous quarter.

Meanwhile, despite a one percentage point seasonal drop compared to the previous quarter, confidence in levels of debt improved by two points compared to Q4 2018 possibly due to tighter credit conditions seen in the last year. Although consumer credit remains well below the ten per cent average expansion seen in 2016, it started to pick up in October for the first time in more than a year, raising hopes that households will continue spending. Unsecured lending to individuals rose 6.1 per cent in October, up from 5.9 per cent in September and the first acceleration since June 2018, according to Bank of England data.

In addition, a strong job market with the employment rate in October reaching its highest level since records began in 1971, saw consumer confidence in job security significantly strengthen this quarter. The measure increased by three percentage points on both an annual and a quarterly basis. These results coincide with CFOs being less negative on hiring, according to the latest Deloitte Survey of UK Chief Financial Officers. For the first time in four years, on balance, CFOs expect UK corporates to increase capital expenditure and hiring over the next 12 months. Almost half of CFOs are also reporting that their businesses have experienced a rise in recruitment difficulties or skills shortages over the last three months, a sign of the tight labour market.

While consumers appear much more optimistic about their own personal finances and job security, this has yet to be reflected in increasing levels of consumer spending. According to our research, spending on essential categories was lower than it was a year ago despite the expected seasonal boost in Q4 2019. Overall spending on discretionary categories saw only a marginal improvement (one percentage point) compared to last year but it improved by five percentage points compared to the previous quarter, moving discretionary spending into positive territory for the first time since the Tracker began.

Figures for net spending in individual categories reflect the fact that consumers have been reducing their spending on groceries and utilities, an indication that low inflation is easing cost pressures of essential items. Meanwhile, categories such as electrical equipment and furniture and homeware did particularly well improving by five and three percentage points respectively compared to the same period a year ago.

​* 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.

Outlook

Consumers enter the new decade with significantly improved confidence not only in their personal finances and job security, but also in the state of the UK economy. However, consumer spending is expected to remain subdued compared to 2016 when household expenditure growth was at 3.8 per cent. It is forecast to run at a rate of 1.4 per cent in 2020, a third of the rate at the time of the referendum. While most UK economic fundamentals remain solid, including low inflation and the unemployment level close to a historic low, economists’ expectations of a slowdown in the employment rate and in real earnings growth could produce headwinds for consumers. However, if the reduced political uncertainty results in a strong rebound in corporate activity, such headwinds might not materialise.

Key contacts

Simon Oaten

Partner, Hospitality & Leisure

Ben Perkins

Head of Consumer Research

Céline Fenech

Research Manager

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