Consumer sentiment showed tentative signs of improvement during the first quarter of the year, but a lack of disposable income is preventing a sustained recovery in the consumer economy, according to the latest Consumer Tracker from Deloitte.
The study found that job security and debt concerns have eased, but lack of disposable income continues to hit spending. It also showed that fewer people were trading down, but consumers were still cautious as discretionary categories continued to bear the brunt of cutbacks with essential spend on the rise.
Deloitte said that trading down, which has been prevalent since the start of the economic crisis in 2008, showed some signs of easing. It found that of those consumers who reported spending less this quarter, 27% did so through buying cheaper products, compared with 32% in the last quarter and 40% three months prior to that.
The company said that discretionary items remained the focus of consumer cutbacks, with 37% of consumers saying they spent less on going out (cinema, theatre, concerts) over the last quarter, whilst the same proportion were cutting back on clothing and footwear.
Utility, grocery and transport bills continued to drain what little disposable income consumers have, with 51% spending more on gas, water and electricity whilst 44% of people spent more on food shopping and transport costs.
The advisory firm also said that compared to the last quarter, fewer people were pessimistic about job security (18% vs. 24%) and the ability to manage personal debt (22% vs. 25%), but 51% of people were downbeat about their household’s disposable income, a slight increase on 49% in the last quarter.
Ian Stewart, chief economist at Deloitte, said: “Consumers remain cautious, albeit slightly less so than at the end of last year. There are some, very tentative signs that the slump in consumer sentiment may be bottoming out. Consumers feel slightly more comfortable with their personal balance sheet but there has been a huge shift in the British consumer’s attitude to debt from being very permissive to out of fashion.
“For consumers to spend more, disposable incomes need to improve. Wages are unlikely to see much growth this year, so the big hope is that sharply lower inflation will support consumer spending power. If inflation drops in the second half of this year, the UK consumer should see some modest growth. Yet the UK consumer remains vulnerable to events, particularly an intensification of the euro crisis or further rises in oil and energy prices.”
Nigel Wixcey, UK head of consumer business at Deloitte, said: “Whilst the first signs of recovery are starting to show, the GDP figures published last week will provide a psychological blow to both consumer and business confidence. To a degree, consumers and businesses are behaving similarly by protecting and strengthening their reserves and waiting for a more certain recovery before splashing the cash.
“Despite all this uncertainty, the consumer economy is looking a little brighter this year than last. This may not be saying much, but we are at least moving in the right direction.”
