Member Article

Consumer confidence makes cautious return

Consumer confidence is returning, but a lack of disposable income is still preventing a sustained economic recovery, according to business advisory firm Deloitte.

The latest Consumer Tracker survey showed that individuals feel more positive about job security and their ability to manage personal debt than during the last quarter, but half of those surveyed were still feeling downbeat about their lack of personal income.

The survey also showed that consumers had slightly reduced their focus on money-saving tactics, but there was no evidence of a return to more free spending habits such as impulse purchases or buying more products.

Trading down, which has been prevalent since the start of the economic crisis in 2008, shows some signs of easing: 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.

Paul Feechan, consumer business partner at Deloitte believes that despite cautious consumer sentiment, there are tentative signs that this feeling is improving.

He commented: “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.”

Despite this however, UK consumers still remain vulnerable to events, particularly an intensification of the euro crisis or further rises in oil and energy prices.

Discretionary items are still the focus of consumer cutbacks, with almost 40% spending less on going out over the last quarter, with the same proportion cutting back on clothes and footwear. Most disposable income is being spent on utilities, groceries and transport costs.

Feechan continued: “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.”

This was posted in Bdaily's Members' News section by Ruth Mitchell .