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