Consumer confidence dented by cost pressures

Here’s why

UK consumer confidence fell by three percentage points in the second quarter of 2017, the biggest quarterly decline in more than two years, according to the latest Consumer Tracker report from Deloitte.

• Consumer confidence falls to -10 per cent in Q2 2017, down from -7% in Q1 and the biggest decline in two year
• Five out of six confidence measures have seen negative quarterly movement
• The Deloitte Consumer Tracker measures UK consumer confidence on a quarterly basis.

The quarterly survey of 3,000 UK consumers, which was carried out between 16 and 18 June 2017, saw overall consumer confidence fall to -10 per cent in Q1 2017, down from -7 per cent the previous quarter. Confidence has now fallen for three consecutive quarters.

The fall in consumer confidence was driven by a quarterly drop in five out of the six measures which make up the confidence index. Consumer confidence in disposable income and the level of debt declined by seven percentage points and four percentage points respectively, falling to their lowest level since 2014.

Ian Stewart, chief economist at Deloitte, said: “A squeeze in living standards has dented consumers’ spirits. With inflation rising to 2.9 per cent in June, its highest level in four years, and earnings growth around the 2.0 per cent mark, consumer spending power is shrinking for the first time in three years. Consumers are not the only ones who are feeling less upbeat – business confidence has also taken a knock.

“However, we shouldn’t lose sight of the fact that some big things are going right for consumers. Unemployment is at a 40-year low, the employment rate has never been higher and interest rates and debt funding costs are at rock bottom levels.

“Consumers are feeling the pinch from higher inflation, but the Tracker shows that sentiment about job opportunities, career progression and job security are higher than they were a year ago.”

According to the Q2 Consumer Tracker, spending across both essential and discretionary categories has been impacted in the last quarter. Spending on essential items fell by four points (12 per cent to 8 per cent) from the previous quarter, and discretionary spending fell by three points (-4 per cent to -7 per cent).

Ben Perkins, head of consumer business research at Deloitte, said: “We have seen a negative impact on spending for both essential and discretionary categories in the last quarter.

However, it should be noted that whilst consumer spending is certainly slowing, record levels of employment and cheap borrowing continue, and we are far away from a total drop-off. Retailers are remaining competitive and are actively trying to help consumers through lower pricing, discounting and clever loyalty programmes.

“Retailers will also know that it doesn’t take much to give consumers a boost. Even a dry, hot summer may be a sufficient catalyst to lift consumer spirits in the short term.”