Deloitte Consumer Tracker: Britain’s discretionary spending hits three-year high

• Improving labour market and falling prices of essentials boosts consumers;
• Fewer people suffering loss or reduction of income and more have received a pay rise;
• Net spending on discretionary items reaches highest level since the Tracker began;
• Overall consumer confidence is three points higher than a year ago.

Falling inflation and an improving labour market are starting to put more money in consumers’ pockets, according to the latest Deloitte Consumer Tracker.

The two factors are underpinning consumers’ confidence in their level of disposable income, which remains stable for the third consecutive quarter (-18%), and is nine points higher than for the same period in 2013.

In the fourth quarter of 2014, fewer people suffered a reduction or a loss of income, and more said they had received a pay rise or bonus than a year ago (11% and 14% respectively, vs. 13% and 11% in 2013).

Consumers’ finances have been boosted by the lowest rate of inflation in 14 years. Falling prices for food, energy and petrol, mean consumers are paying less for essentials (9% spending more vs. 15% in Q4 2013), freeing more disposable income for discretionary and big ticket purchases, such as major household appliances (-3% vs. -5% in Q4 2013) and going out (-9% vs. -15% in Q4 2013).

Ben Perkins, head of consumer business research, explained: “Lower inflation and higher wages are having a pronounced effect on consumer spending behaviours. Categories such as hotels and restaurants or consumer technology have really benefited from consumers feeling less of a squeeze on their disposable income. 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.”

However, while the long-term trend in consumer confidence is up, short-term uncertainties have emerged. In the fourth quarter of 2014, overall consumer confidence fell three points compared with the previous quarter (-8% vs. -5% in Q3 2014). This dip reflects weaker sentiment about health and wellbeing, and job security.

Ian Stewart, chief economist at Deloitte, said: “Although consumers have turned more positive on prospects for incomes in the last year, continued uncertainties seem to be affecting their wider perceptions of their welfare. This appears to echo the finding of Deloitte’s latest survey of Chief Financial Officers (CFOs)* which shows that while CFOs are upbeat on the UK economy, external factors, such the UK General Election and uncertainty overseas, have dampened confidence.

“For the UK consumer the sort of transient deflation caused by lower oil and other commodity prices will be a significant positive in 2015. Growth in real wages is set to accelerate further. Chief Financial Officers report that they expect employee earnings in their businesses to rise significantly faster than inflation this year. This recovery in disposable incomes points to a further acceleration in the growth of UK consumer spending in 2015, with discretionary categories likely to do especially well.”

Ends

Note to Editors
* The Deloitte CFO Survey: 2014 Q4

About The Deloitte Consumer Tracker
The Deloitte Consumer Tracker is an economic update focussed on consumer spending attitudes and behaviours. through a quarterly survey of 3,000 adult UK consumers it monitors the patterns of consumer expenditure on a category-by-category basis and the underlying drivers of spending behaviour, notably household disposable income and consumer confidence. It also considers consumers’ spending outlook for the next quarter.

About Deloitte
In this press release references to Deloitte are references to Deloitte LLP, which is among the country's leading professional services firms.

Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, whose member firms are legally separate and independent entities. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.

The information contained in this press release is correct at the time of going to press.

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