The Deloitte Consumer Tracker Consumer confidence sees its largest increase in 18 months Q3 The latest Deloitte Consumer Tracker shows that UK consumers have shrugged off postreferendum pessimism, with consumer confidence returning to a five-year high in Q3. In a sign that Brexit fears have been put to one side Deloitte s consumer confidence index rose by three percentage points quarter-on-quarter, its largest increase in 18 months. Five out of the six measures which make up the confidence index rose between the second and third quarters. There were strong gains in consumer confidence regarding job security, job opportunities and career progression. The job security index rose by six percentage points compared to the last quarter after having fallen for three consecutive quarters. In an inversion of the usual relationship, sentiment among Londoners is running lower than for the rest of the UK. Confidence in London has dropped by three percentage points in Q3 and is now nine percentage points lower than it was the same period a year ago. Voting patterns in the referendum showed a majority of Londoners were firmly in the Remain camp. Given the capital s dependence on financial services, a Brexit-led downturn could weaken its economy leading to job cuts, falling house prices and a decline in business activity. Consumer spending overall remains largely stable supported by low inflation. However, expenditure continues to shift from essentials to discretionary categories. Net spending on essentials was flat for the second consecutive quarter, while net spending on discretionary categories rose by one percentage point. Moreover, the gap between leisure and retail spending is narrowing as consumers continue to favour spending on experiences such as holidays rather than on goods. The strength of consumer spending is reflected in the growth of retail sales since the beginning of, with a 5.5 per cent rise in the three months to ust compared to a year earlier. With the consumer-focused economic fundamentals still showing few signs, if any, of a slowdown since the end of e, we expect retail sales growth to continue into the fourth quarter. Looking further ahead, the UK consumer faces the prospect of higher inflation and the start of the formal Brexit process in 17 two events that pose challenges to consumer spending power and sentiment. Key indicators *Net balances Overall consumer confidence (q/q)* Confidence in level of job security (q/q)* Essentials spending (q/q)* Discretionary spending (q/q)* ONS retail sales value growth - (y/y) CPI inflation - (y/y) -8% -1 -% + + -3% -% Authors Ben Perkins Head of Research Consumer & Industrial Products 737 7 beperkins@deloitte.co.uk Céline Fenech Research Manager Consumer & Industrial Products 733 cfenech@deloitte.co.uk Rebecca Thomson Research Manager Consumer & Industrial Products 77 891 rebthomson@deloitte.co.uk +.9% +3.9% +.%
The Deloitte Consumer Tracker Q3 Consumer confidence sees its largest increase in 18 months Consumer confidence Consumer confidence returns to a five-year high in Q3 In a sign that Brexit fears have been put to one side Deloitte s consumer confidence index rose by three percentage points quarter-onquarter, its largest increase in 18 months. Chart 1. Deloitte consumer confidence Net % of consumers who said their level of confidence has improved in the past three months -1 - Q3 Q Q1 Q3 Q Q1 Q3 Q Q1 Q3 Q Q1 Q3 Q Q1 Q3 Five out of the six measures which make up the confidence index rose between the second and third quarters. There were strong gains in consumer confidence regarding job security, job opportunities and career progression. Chart. UK consumer sentiment about personal situation Net % of consumers who said their level of confidence has improved in the past three months 1-1 - -3 - -5 Q3 Q Q1 Q3 Q Q1 Q3 Q Q1 Q3 Q Q1 Q3 Q Q1 Q3 Your household disposable income Your general health and wellbeing Your job security Your job opportunities/career progression Your level of debt Your children s education and welfare The job security index rose by six percentage points compared to the last quarter after having fallen for three consecutive quarters. Chart 3. Consumer confidence in job security Net % of UK consumers who said their level of confidence in job security has improved over the past three months -1 - - - -1-5 -5 - - - - -3 - - - -7-7 -7 - - - - - Q3 Q Q1 Q3 Q Q1 Q3 Q Q1 Q3 Q Q1 Q3 Q Q1 Q3 Your job security
The Deloitte Consumer Tracker Q3 Consumer confidence sees its largest increase in 18 months Consumer confidence An inversion of the usual North vs London relationship Confidence among Londoners fell by three percentage points this quarter and is now nine percentage points lower than it was a year ago. In the meantime, confidence in the North is at its highest since the series began. Chart. Consumer confidence by region Net % of UK consumers who said their level of confidence has improved over the past three months -1 - Q3 Q Q1 Q3 Q Q1 Q3 Q Q1 Q3 Q Q1 Q3 Q Q1 Q3 North London and South East Midlands and South West London Londoners were also less confident about the security of their jobs. Given the capital s dependence on financial services, a Brexitled downturn could weaken its economy leading to job cuts, falling house prices and a decline in business activity. Chart 5. Consumer confidence in job security by regions Net % of UK consumers who said their level of confidence in job security has improved over the past three months 1-1 - - Q3 Q Q1 Q3 Q Q1 Q3 Q Q1 Q3 Q Q1 Q3 Q Q1 Q3 North London and South East Midlands and South West London Uncertainty among the Chief Financial Officers of the UK s largest corporates remains high post-brexit. Chart. Uncertainty % CFOs who rate the level of external financial and economic uncertainty facing their business as above normal, high or very high 9 8 7 5 Q3 Q Q1 Q3 Q Q1 Q3 Q Q1 Q3 Q Q3 Q Q1 Q3 Q Q1 Q3 Source: Deloitte CFO Survey 3
The Deloitte Consumer Tracker Q3 Consumer confidence sees its largest increase in 18 months Consumer spending Consumer spending remains stable British shoppers have kept on spending in the aftermath of the vote to leave the EU. Consumer spending overall remains largely stable supported by low inflation. Chart 7. Consumer expenditure % change y-o-y, final consumption expenditure, constant prices, SA % 3% % 1% -1% -% -3% -% -% 7 8 9 1 Source: ONS However, expenditure continues to shift from essentials to discretionary categories. Net spending on essentials was flat for the second consecutive quarter, while net spending on discretionary categories rose by one percentage point. Chart 8. Essentials vs discretionary spending in the last three months Net % UK consumers spending more by category % 1-1 - Q3 Q Q1 Q3 Q Q1 Q3 Q Q1 Q3 Q Q1 Q3 Q Q1 Q3 Essentials Discretionary Moreover, the gap between leisure and retail spending is narrowing as consumers continue to favour spending on experiences such as holidays rather than on goods. Chart 9. Category spending in the last three months Net % UK consumers spending more by category % 1-1 - - -3 Q3 Q Q1 Q3 Q Q1 Q3 Q Q1 Q3 Q Q1 Q3 Q Q1 Q3 Retail spending Leisure spending
The Deloitte Consumer Tracker Q3 Consumer confidence sees its largest increase in 18 months Consumer spending Consumer spending remains stable The strength of consumer spending is reflected in the growth of retail sales since the beginning of, with a 5.5 per cent rise in the three months to ust compared to a year earlier. Chart. Retail sales % change in volume and value year-on-year 1 8 - - 7 8 9 1 Value Volume Inflation remains low across most categories, with competition continuing to keep prices down in the grocery sector. However, while overall inflation in ust remained flat at. per cent, it has been rising since the start of. Chart. Inflation % change year on year Hotels, Cafes & Restaurants Health Alcoholic beverages & Tobacco Transport Miscellaneous goods & Services Recreation & Culture Housing, Water & Fuels Furniture & Household equipment Clothing & Footwear Food & Nonalcoholic beverages - - 8 /8/ /8/ Source: ONS Education Communication Total inflation -. -.9 -. --1. -. -. -.1 1.1.3 1.8 1.8 1..1 1.8.8.7.....1.8 UK retailers have seen their costs rise as a result of the introduction of the new higher minimum wage and the fall in the value of sterling. The key question for retailers is how much of these increased costs they will be able to pass on to consumers while still protecting their margins. Chart 1. British pound sterling effective exchange rate index 1 5 95 9 85 8 75 7 Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep 97 98 99 1 3 5 7 8 9 1 Source: Bank of England 5
The Deloitte Consumer Tracker Q3 Consumer confidence sees its largest increase in 18 months Consumer finance Era of low inflation coming to an end An extended period of falling prices, which has enabled consumers to increase their consumption despite subdued wage rises, could be drawing to an end. Chart. % Growth in average wages vs CPI Inflation % change year-on-year 8 - - 7 8 9 Source: Thomson Reuters DataStream. 1 Average earnings including bonuses UK inflation (CPI) Consumer borrowing remains high as the UK shopper defies pessimistic post-referendum forecasts. Chart. Consumer credit Secured and unsecured lending to individuals (% change year-on-year) 1 8 - - 7 8 9 Source: Thomson Reuters DataStream 1 UK consumer credit Net unsecured lending to individuals (%y-on-y) UK personal borrowing: Dwellings Net lending (%y-on-y) SADJ The unemployment rate has continued to decline and stood at.9 per cent in the three months to e. Chart. Unemployment rate % change year-on-year 8 7 8 9 Source: Thomson Reuters DataStream 1 UK LFS: unemployment rate, all, aged & over SADJ
The Deloitte Consumer Tracker Q3 Consumer confidence sees its largest increase in 18 months Outlook Possible headwinds ahead Consumers in our survey expect to spend more on essentials in the next three months. Chart. Category spending over the next three months Net % UK consumers spending more by category % 1-1 - - Q3 Q Q1 Q3 Q Q1 Q3 Q Q1 Q3 Q Q1 Q3 Q Q1 Q3 Essentials Small-ticket items Big-ticket items With the consumer-focused economic fundamentals still showing few signs of a slowdown since the end of e, we expect retail sales growth to continue into the fourth quarter. Chart 17. Consumer indicators % change year-on-year Unemployment Average weekly earnings growth rate Interest rates e e July July Sep Sep 5..9%.9%.3%.. Growth forecasts remain positive with GDP expected to increase by 1.7 per cent in, although slowing to.7 per cent in 17. Looking further ahead, two events could pose challenges to consumer spending power and sentiment: the prospect of higher inflation and the start of the formal Brexit process in 17. Chart 18. UK GDP growth: Actual and forecast (%) Forecasts 3 1-1 - -3 - -5 - -7 7 8 9 Year-on-year growth 1 Quarter-on-quarter growth Source: ONS, consensus forecasts from The Economist and Deloitte calculations 17 7
Contacts Nigel Wixcey Industry Leader, Consumer & Industrial Products 733 57 nigelwixcey@deloitte.co.uk Ian Geddes Lead Partner, UK Retail 733 519 igeddes@deloitte.co.uk Graham Pickett Lead Partner, UK Travel, Hospitality and Leisure 193 7 gcpickett@deloitte.co.uk About this research The Deloitte Consumer Tracker is based on a consumer survey carried out by independent market research agency, YouGov, on our behalf. This survey was conducted online with a nationally representative sample of over 3, UK adults aged 18+ between and 19 September. A note on the methodology Some of the figures in this research show the results in the form of a net balance. This means that in a survey of respondents, assume that 3 reported they are spending more, 5 reported no change and reported they are spending less. The net balance is calculated by subtracting the number that reported they spent less from the number that reported they spent more, i.e. 3 =. This means 1 of consumers reported that they spent more rather than less. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited ( DTTL ), a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms. Deloitte LLP is the United Kingdom member firm of DTTL. This publication has been written in general terms and therefore cannot be relied on to cover specific situations; application of the principles set out will depend upon the particular circumstances involved and we recommend that you obtain professional advice before acting or refraining from acting on any of the contents of this publication. Deloitte LLP would be pleased to advise readers on how to apply the principles set out in this publication to their specific circumstances. Deloitte LLP accepts no duty of care or liability for any loss occasioned to any person acting or refraining from action as a result of any material in this publication. Deloitte LLP. All rights reserved. Deloitte LLP is a limited liability partnership registered in England and Wales with registered number OC3375 and its registered office at New Street Square, London ECA 3BZ, United Kingdom. Tel: + () 793 3 Fax: + () 7583 98. Designed and produced by The Creative Studio at Deloitte, London. J971