UK shoppers stayed upbeat in Q4 but new-in offer could see chillier environment

By

Sandra Halliday

Published
Jan 30, 2017

UK consumer confidence may have dipped in Q4 but it remained higher than a year ago and Millennials in particular were feeling upbeat. But there are concerns that confidence could dive this spring, hurting spending.

Deloitte’s Consumer Tracker, a quarterly survey of 3,000 UK consumers, showed that although overall confidence in Q4 dipped by one percentage point compared to Q3 (from -5% to -6%), five out of the six measures that make up the index saw positive year-on-year growth.

Consumers remained confident about the outlook for jobs, with sentiment around career progression improving while views on job security remain unchanged. These were all important factors when consumers were deciding whether or not to take on debt and spend more on autumn/winter collections plus Christmas gifts. With many relatively upbeat Christmas trading updates having been released in recent weeks, it appears they did just that.

The Q4 Consumer Tracker showed that consumer net spending grew and that discretionary net spending was up by two percentage points from the previous quarter (0% to 2%). Net spending on essentials grew considerably, rising by seven percentage points from Q3 (5% to 12%).

But will discretionary spend hold up this year and will consumers buy into the fashion sector’s new-in offer in the next few months? On that question, the jury appears to be still out.

On the plus side, confidence among 18-34 year-olds is as its highest level since the Tracker began six years ago. This recovery has been largely driven by growing confidence around disposable income and debt, with 18-34 year-olds’ sentiment about job security having improved for two consecutive quarters.

But consumer sentiment across a wider age range is still fragile and overall confidence on disposable income fell marginally in Q4, by two percentage points from the previous quarter (-12% to -14%). That means it is now three percentage points lower than it was in Q4 2015.

Ian Stewart, chief economist at Deloitte, said: “So far, Brexit has not dented consumers’ confidence about the outlook for jobs, particularly among younger workers. Rising real wages, credit growth, high employment and rather more positive business confidence have bolstered consumer spirits and have kept consumer confidence levels stable, and higher than 12 months previously.

“However, the New Year sees the arrival of headwinds that may challenge the current consumer-friendly economic conditions.

“Falling confidence about disposable income may be a sign that we are seeing the start of a squeeze on household incomes. Rising inflation, largely driven by the weakening pound in recent months, will also put pressure on real incomes and consumer spending in 2017.”

Deloitte said confidence may be rocked this year by the combination of rising costs of goods and services, caused by inflation following the pound’s plunge, and a possible slowdown of wage growth. This may impact consumers’ spending power and their willingness to spend on non-essential discretionary items in the first half of 2017.