Consumer confidence in the UK has been hit once again due to the persistent rise in prices and inflation, causing worries among consumers. According to Deloitte’s latest Consumer Confidence Index for Q4 2021, there has been a decline of one percentage point for the second consecutive quarter, reaching -11%. The main factor contributing to this decrease is the impact of inflation on household finances, with increased bills putting a strain on consumer budgets.
The recent Deloitte Consumer Tracker, which surveyed 3,177 UK consumers between December 31 and January 5, discovered that personal expenditure in the final quarter of 2021 increased for 41% of consumers, compared to 36% in Q3. Out of these consumers, a staggering 74% attributed the increase to rising prices. This clearly indicates that consumers are feeling the effects of inflation and are being compelled to spend more on essential items.
When analyzing the seven measures of confidence in the Consumer Tracker, it was found that sentiment regarding the state of the economy recorded the largest decline, dropping eight percentage points from the previous quarter. This is the lowest reading since Q1 2021 when the UK was under strict lockdown measures. Additionally, consumers expressed their intention to reduce spending on discretionary items in the current Q1, with a significant decrease of nine percentage points. Categories such as going out and eating at restaurants saw particularly significant declines of -20 and -17 percentage points respectively. Although the research did not cover spending on clothing, it can be assumed that cuts in this area will also be higher due to reduced socializing and fewer opportunities to showcase new wardrobe choices.
While overall consumer spending on essential goods and services is expected to remain stagnant in Q1 2022, there is an anticipated increase of nine percentage points in utility bill expenditure. This suggests that consumers are prioritizing necessities over discretionary spending, with holidays and socializing likely to be postponed. The report points out that despite pent-up demand, the expected squeeze on spending power and higher inflation may dampen hopes of a consumer recovery. However, it is worth noting that some consumers still have higher levels of savings compared to pre-pandemic times, indicating a certain degree of financial resilience.
Céline Fenech, consumer insights lead at Deloitte, commented on the findings, stating that an improvement in sentiment and a boost in spending may not occur until inflation has reached its peak, despite the easing of restrictions. The crucial question then becomes whether consumers can sustain their spending in the interim.
In conclusion, the Deloitte Consumer Confidence Index for Q4 2021 reflects the mounting concerns among UK consumers regarding rising prices and inflation. As household finances are affected and uncertainty looms over the economy, consumer confidence has declined. With consumers tightening their budgets and prioritizing essential spending, it remains unclear how and when the recovery will take place.
Useful Links:
1. BBC: UK consumer confidence falls again amid rising prices
2. The Guardian: UK consumer confidence falls to lowest level since lockdown
