Weak inflation ‘boosting discretionary spending’

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Weak inflation ‘boosting discretionary spending’

Discretionary spending is rising among consumers, on the back of weak inflation and better wage trends, Deloitte has revealed.

Monday 26 January 2015

People’s confidence in their disposable income remains stable, according to Deloitte, thanks to weak inflation and improving employment trends.

The business advisory firm’s latest Consumer Tracker, which covers the closing quarter of last year, recorded a confidence score of minus 18% in this area.

While it is still in negative territory, the reading is nine points higher than where it was during the fourth quarter of 2013.

It has now also been stable for three quarters in a row.

Weak inflation data

The UK inflation rate, as measured by the Consumer Prices Index, fell to 0.5% in December, according to the Office for National Statistics.

Deloitte said this appears to be having a positive knock-on effect on people’s incomes, with discretionary spending hitting a three-year high.

While 9% of the consumers polled said they were spending more money on essentials like food and petrol, this is lower than the 15% who reported the same thing during the final three months of 2013.

The balance has also improved, from minus 5% to minus 3%, in terms of the proportion of people who are able to increase their spending on household appliances.

Improving employment trends

With regards to the employment market, only 11% of those polled said they saw a reduction in their income or the loss of their income as 2014 came to an end, compared to 13% in 2013.

Elsewhere, 14% said they were handed a bonus or a wage increase, up from 11%.

Quarterly dip in overall confidence

In quarterly rather than annual terms, the results were slightly less encouraging.

Deloitte said that while the overall consumer confidence reading stood at minus 5% in the third quarter of last year, it fell to minus 8% between October and December.

Concerns over job security, health and wellbeing are all thought to have fuelled this quarterly decline.

However, the fourth-quarter confidence reading was three points higher on an annual basis.

Boost for consumer technology sector

Ben Perkins, head of consumer business research at Deloitte, said the consumer technology and hospitality sectors appear to have benefited from improving disposable income trends.

He added: “In comparison, net spending on utilities and groceries is growing more slowly than consumer spending overall, a reflection of falling fuel prices at the pump and the grocery sector’s intense price competitions.”

2015 predictions

Looking ahead to the first quarter of 2015, those questioned by Deloitte broadly said they intend to increase their discretionary spending compared to last year.

They also broadly intend to reduce the amount they spend on essential items like groceries and utility bills, the firm added.

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