With the continued tightness in the job market, confidence about job security rose by one percentage point to -4% compared with Q2 2021 and is 11 points higher than the same period a year ago. Sentiment around job opportunities and career progression also continued to improve, gaining three percentage points to -4% compared with Q2 2021, and representing a 16 percentage point increase on Q3 2020.
The Office for National Statistics (ONS) reported a 20 year record high number of job vacancies which rose to 1.1m in the three months to August, while the average unemployment rate for the period fell to 4.5%, from 4.6% in the previous three-month period. However, the figures also highlighted that the UK workforce is still significantly smaller than it was before the COVID-19 crisis began. As a result, the UK is experiencing shortages of key skills that together with other factors such as unusually strong demand for goods, have contributed to a rapid increase in the rate of inflation pointing to potential interest rate rises.
Meanwhile, confidence about children’s education and welfare and sentiment about health and wellbeing remains correlated to the direction of the pandemic. Indeed, with schools reopening in September, and with government requirements on self-isolation being relaxed, confidence about children’s education and welfare continued to improve in Q3 2021 (+4 percentage points to -3%). However, the increasing rate of infections seems to have negatively impacted consumers’ optimism around health and wellbeing which lost one percentage point to -22% compared with Q2 2021.
Consumers were not only less confident about their own circumstances in the third quarter, they were also significantly less confident about the state of the UK economy. A series of negative economic news including the ending of the government furlough scheme, and the £20 a week uplift to the universal credit, combined with higher energy bills, and supply-chain disruptions contributed to consumer sentiment around the state of the UK economy falling by seven percentage points to -45% this quarter. On the positive side, consumer confidence in the state of the economy not only remains significantly higher than this time last year (+11 percentage points) it is also higher than in pre-pandemic Q3 2019 (+10 percentage points).
Consumer sentiment about the state of the UK economy seems to be echoing CFO concerns about the likely persistence of the labour shortages and supply disruptions. According to the latestDeloitte CFO survey, CFOs rate labour shortages, the pandemic and inflation as the top risks facing their businesses. Amid growing wage and price pressures, CFO expectations for a rise in operating costs have hit a record high with a majority of respondents expected a margin squeeze over the next 12 months. Corporates expect inflation to run higher for longer, with 54% of CFOs expecting inflation to exceed 2.5% in two years’ time, well above the Bank of England’s 2.0% target rate. The survey also reveals that despite labour and supply shortages, CFOs remain focussed on growth. Introducing new products or services and expanding into new markets is their top balance sheet priority. CFOs are placing greater emphasis on increasing capital expenditure now than at any time in the history of the survey. The post-financial crisis period was characterised by corporate caution, with cost control and cash conservation CFOs’ primary response to economic shocks. Today, amid excess demand, and with the pandemic, the energy transition and Brexit driving change, corporates are focussing on investment, particularly in new technology.
Despite a fall in overall confidence and weaker sentiment surrounding the state of the economy, it is encouraging to see that spending activity remained positive in Q3 2021. Continued pent-up demand following the prolonged periods of lockdown, saw both essential and discretionary net spending up this quarter by six and seven percentage points, respectively. Also, for the first time since the Tracker began ten years ago, net discretionary spending is positive at +2%. This means that for the first time in the Tracker’s history there are more consumers who have increased their discretionary spending compared to those who have spent less. In particular there was strong quarterly net spending growth in categories associated with travelling and socialising, such as holidays and hotels (+ 18 percentage points), going out (+15 percentage points) and restaurants (+12 percentage points). However, this also resulted in a fall in spending on in-the-home drinking (-2 points). With the return to the office and the reopening of the economy in general, there was a significant increase in spending in the transport category both on a quarterly (+19 percentage points) and annual basis (+57 percentage points). Consumers also indicated they are spending more on utilities in Q3 2021 compared with the previous quarter (+12 points). An increase in spending on both transport and utilities also points to pressures from rising energy costs.