UK consumer confidence remained broadly in line with the three year average in the first quarter of 2017, falling by one percentage point as rising cost pressures took hold, new figures show.
According to the latest Consumer Tracker from business advisory firm Deloitte, which surveyed 3,000 UK consumers between 17-20 March, overall consumer confidence fell to -7% in the quarter.
Significantly, four out of the six measures which make up the confidence index have seen negative movements in the first quarter, with inflation rising and discretionary spending falling. In particular, consumer confidence in disposable income fell by three percentage points to -17%, its lowest level in more than two years.
“Since last summer’s EU referendum consumer spending has held up well, but with inflation rising and nominal wage growth starting to slow, consumers are beginning to feel a squeeze on their disposable income,” says Ian Stewart, chief economist at Deloitte.
“In March, the rate of inflation stood at 2.3%, above the Bank of England’s 2% target and the highest in more than two years. There are already some signs that these pressures are contributing to a slowdown in consumer activity.”
Record levels of employment and low interest rates, however, should help the UK avoid a sharp drop in consumer spending, Stewart says.
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By GlobalDataAccording to the tracker, essentials spending remained strong, at 12%, after a significant increase in the fourth quarter of 2016. However, spending on discretionary items returned to negative territory, falling by four percentage points to -4% in the first quarter of 2017.
Ben Perkins, head of consumer research at Deloitte, adds: “With less disposable income, consumers will have to consider whether to trade down, buy less or borrow more. Consumers are already showing signs of moving away from making major purchases, and this is a trend that is likely to continue.
“Consumers have already been tapping into their savings with the latest data on the household savings ratio for Q4 2016 showing it is at its lowest level in over 50 years. However, with interest rates remaining low, debt has been relatively cheap to manage meaning borrowing more might still be an option.”
Perkins says retailers and other consumer businesses will need to think carefully about their offerings to ensure they are targeting the right products and services to the right customers.
“Indeed, rather than catering for all needs and desires, now it is the time for retailers to focus on specialisation, differentiation and innovation, in order to ensure they remain as competitive as possible.”
