The Deloitte Consumer Tracker Q2 2022

Confidence at record low as the squeeze on consumers tightens
Consumer confidence fell for the fourth consecutive quarter to its lowest level on record in Q2 2022. In a sign that consumers are more pessimistic now than they had been in the depths of the pandemic, the Deloitte Consumer Confidence Index declined by three percentage points to -19% compared with Q1 2022, reaching a lower level than in Q1 2020 when the UK entered its first lockdown. Surging inflation and the subsequent sharp squeeze on consumer spending power, led to the further deterioration of consumer confidence.

Key takeaways for Q2 2022

  • Consumer sentiment around their personal finances fell for the fifth quarter in a row. Consumer confidence in levels of disposable income fell by 43 percentage points to -55%, compared with Q2 2021, reaching its lowest level since the Deloitte Consumer Tracker began in 2011. Likewise, sentiment about levels of debt fell by 13 percentage points to -15% compared with the same period a year ago, nearing record lows last seen 11 years ago after the financial crisis.
  • Confidence in the state of the UK economy plummets. In a sign that consumers are not just concerned about their personal finances, their, losing ten percentage points to -83% in Q2. This was lower than when COVID-19 restrictions were introduced in the UK back in Q1 2020.
  • Growing concern for job security. While unemployment remains at a 50-year low, our data shows that consumers are increasingly concerned about their job prospects with confidence in both job security and job opportunities declining for the second consecutive quarter.
  • Spending on day-to-day and non-essential items slows as consumers rein in their spending to cope with rising inflation. Of those consumers who said they spent more in Q2 2022, 86% indicated it was because prices were going up, twice as high as the figure (43%) for the same period in 2021. Our spending sentiment data shows that overall essential spending is down by two percentage points to -2% while discretionary spending has lost five percentage points to -8% compared with Q1 2022.
  • Consumers have continued to spend on holidays and hotels albeit at the same level as in Q1 2022. With consumers having to postpone their holiday plans over the last two years due to the pandemic, the category appears nearly sacrosanct this year. However, with inflation set to hit 11% by the autumn, the squeeze on consumer spending might be felt across all categories including travel.
  • Consumers who reported a rise in overall expenditure are adopting new spending habits which could become a lasting legacy of this inflationary period:
    • Half of those consumers said they aim to reduce energy consumption and one in five (21%) is shopping around for fuel more.
    • A third of those consumers are also reducing how much they buy and switching to cheaper brands or stores.
    • Fewer, but still around one in five consumers, are reducing or ending the number of subscriptions they hold and postponing major purchases such as buying a new car or rescheduling large home improvements.
    • Some consumers are also finding more innovative ways to spend less while also supporting a more sustainable lifestyle. For example, 18% are experimenting with reselling their personal belongings while 15% claim to be buying more second-hand or refurbished goods.

Consumers' coping mechanisms in response to rising prices

Consumer spending in the last three months

How businesses are responding to slowing activity

The fall in overall expenditure is a major concern for the UK economy given that consumer spending accounts for half to two-thirds of all economic activity. Household consumption has been the driver of the economic rebound in the last year.

Amid rising inflation and intensifying economic headwinds, finance leaders assign a 63% probability to experiencing a recession within the next year, according to Deloitte’s UK CFO Survey Q2 2022. In addition, over two-thirds (68%) believe high inflation will continue - anticipating it to remain higher for longer - and to exceed economists’ expectations. When asked how they are responding to rising costs, CFOs say they are passing on price rises to customers, improving cash flow management and absorbing higher inflation through a reduction of margins.

For the more competitive consumer categories, investing in both value ranges and premium offerings, will be key in protecting revenue and growing market share. Many companies are also divesting to optimise portfolios, and many are being cautious regarding potential acquisitions. Some are also shifting investment to emerging markets for continued growth. In addition, businesses are also placing greater emphasis on defensive strategies such as reducing costs, driving efficiencies through automation and increasing cash flow.

Outlook for Q3 2022

Trends such as eating out more, returning to the office and spending in the travel sector, will be tempered in Q3 2022 by households trying to save money by working from home, eating in, and cutting their holiday budgets especially given the recent chaos in the UK transport system and calls by trade unions for further strikes. Our data shows that consumer spending will continue to decrease in Q3 2022. Our spending intention data points to a fall in both essential and discretionary categories in the next quarter. Some businesses will be better placed to weather the storm by offering a wide product range so that consumers can trade up or down within their own brands. Others that have too much unwanted stock will find it difficult if demand deteriorates further. This autumn will not only bring another rise in the energy price cap for consumers, it will also bring a possible wave of insolvencies for some businesses already struggling.

Consumer spending intentions for the next three months

Sector updates

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Key contacts

Céline Fenech

Research Manager

Dominic Graham

Managing Partner Consumer