UK consumer confidence in the final quarter of 2022 improved by half (+0.6) a percentage point, according to the Deloitte Consumer Tracker. Whilst small, the uptick marks the reversal of a 15-month period of consecutive decline.
Overall confidence was boosted by quarter-on-quarter improvement in sentiment towards levels of debt (+3.8 percentage points) and household disposable income (+6.5 percentage points), as some consumers received pay rises or seasonal bonuses. However, whilst both measures improved, they remained below their year-on-year comparables.
Consumer sentiment towards the state of the economy increased by 3.1 percentage points in Q4, reaching -76%. Whilst remaining close to record-low levels, the improvement comes at a time of low levels of unemployment and inflation starting to ease; albeit running higher than current wage growth.
However, sentiment on job security declined quarter-on-quarter by 1.2% (to -10%), indicating consumer concern about possible deterioration in the job market as a consequence of recession. By contrast, almost a third of CFOs still rate labour shortages as a ‘severe’ or ‘significant’ difficulty faced by their businesses.
Ian Stewart, chief economist at Deloitte, commented: “This is a very different recession from those of the recent past. A year into the cost of living crisis, unemployment is close to 50-year lows and the economy showed unexpected resilience in the closing months of 2022. With corporate margins under pressure and top line growth slowing, we see unemployment drifting higher this year just as the effects of past interest rate rises fed through to mortgage costs.
“Meanwhile, real incomes are set to decline for the second consecutive year and consumer spending is likely to shrink. However, by the standards of past recessions, this is likely to be a relatively mild one, with a low peak in unemployment and growth resuming towards the end of 2023.”
Consumers continue their thrifty behaviours
Consumers are less pessimistic about their levels of debt and household disposable income, which rose by 3.8 and 6.5 percentage points, respectively, from the previous quarter. In a sign that pressures on households might have passed their most intense point, the proportion of consumers adopting coping strategies to manage the rise in the cost of living has started to ease. However, despite the upturn in sentiment, consumers continue to adopt recessionary purchasing behaviours. Of the consumers who are spending less, 60% are doing so to save money, up year-on-year from 33%.
Looking ahead into 2023, Deloitte found that one in four consumers are planning to use more retail loyalty schemes to benefit from member-only discounting. A further one in four consumers are also planning to put off new purchases altogether by repairing or fixing existing items.
Céline Fenech, consumer insight lead at Deloitte, commented: “Consumers indicate that the squeeze on their purchasing power could now be past its peak. However, ongoing recessionary consumer behaviour indicates that many households are struggling, and we are likely to see consumers continue to reduce their overall spending into the first half of the year. As we saw over the festive period, consumers have become thrifty, taking advantage of discounts and promotions including making more of the benefits provided by loyalty schemes. Consumers are also increasingly extending the lifespan of items through fixes and repairs, rather than footing the expenditure of a brand-new purchase.”
NAM Implications:
- Most of us live in hope…
- But any contemplation of investment requires a reality check.
- Despite the optimism, this looks like the emergence of super-savvy consumers…
- …unwilling to accept anything less than demonstrable value for money, every time…
- And it might be wise to regard any investment in cautious optimism with that in mind…
- (Unless you enjoy the excitement of a leap in semi-darkness?)
