Cost-Of-Living Squeeze Drives Confidence To Historic Low

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Ian Stewart, chief economist at Deloitte
  • The Deloitte Consumer Tracker reveals UK consumer confidence fell for a fifth consecutive quarter in Q3 2022, reaching a record low of -20%, twice as low as a year ago.
  • A growing number of consumers (30%) are spending less, up from 21% at the start of the year, with 58% doing so to save money.
  • Consumers reduce their leisure spend across almost every category in Q3, with indications of further reduction in the final quarter of the year.
  • Sentiment on the state of the economy remains low, at -80%; nearing levels seen at the start of the Covid-19 pandemic.

UK consumer confidence fell for the fifth consecutive quarter in Q3 2022, falling by one percentage point to a historically low -20%, according to Deloitte’s latest Consumer Tracker. Spending power also remains significantly strained, as consumer sentiment around levels of debt also reached the lowest levels on record, at -17%; two percentage points below Q2 2022.

The Deloitte Consumer Tracker is based on responses from 3,226 UK consumers aged 18+ between 17th and 18th September. Overall consumer confidence has fallen to its lowest level since the tracker began in Q3 2011.

Consumers cut back to curb costs
Both essential and non-essential spend declined for a second consecutive quarter in Q3, decreasing by two and one percentage points respectively, indicating that consumers are cutting back across all areas. 30% of consumers said they are now spending less, up from 21% at the start of the year. Of these consumers, 58% said they are spending less specifically to save money.

Céline Fenech, consumer insight lead at Deloitte, commented: “Consumers are making conscious efforts to cut-back on all spending. With rising food prices and personal finances coming under further pressure from higher energy bills, we are seeing a contraction in consumer demand.”

Consumers highlight several actions they are taking to combat rising costs. This includes 57% who are reducing their home energy consumption, 40% who are spending less on clothes and shoes, and 22% of respondents who have ended, or intend to end, an entertainment subscription.

Consumers turn their hand to selling, and shop the second-hand market
Growing interest in the second-hand market saw one in five consumers selling items on resale platforms in Q3. 16% of consumers bought more second-hand or refurbished items in Q3, more than twice the 7% that did so in Q3 2020.

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Fenech added: “Whilst we are seeing consumers reducing their overall spend, some are also trying to boost their income by reselling items they no longer need or use via reselling platforms. The demand is clearly there as we are also seeing more consumers interested in buying second-hand items, as a way to save.”

Consumers stay home to reduce leisure spend
Two in five (39%) consumers said they are spending less on going out and on leisure activities as a way to save money. As a result, net spend across leisure fell quarter-on-quarter by two percentage points, to -12%, in Q3 as consumers eat out less and limit their visits to coffee shops, pubs and bars, and to culture and entertainment venues. One exception, attending sports events, was the only area of leisure to see a quarter-on-quarter improvement. This follows a busy period of sporting events; many of which having returned to full-scale audiences again.

Simon Oaten, partner for hospitality and leisure at Deloitte, said: “The hospitality industry has been one of the hardest-hit in recent years. As consumers assess their budgets amidst rising costs, many are having to prioritise the essentials, directing spend away from discretionary categories, including leisure. Many hospitality businesses are already feeling the effects of lower footfall, whilst also having to counteract rising running costs themselves.”

Consumers indicated that they will spend even less on leisure in Q4 2022, with intended net spend down across every leisure category, at a time when 59% of consumers believe they will have less money to spend for the Christmas period.

Consumers remain pessimistic on state of the economy
Consumer sentiment towards the state of the UK economy remains low, at -80%, and at similar levels last seen in Q1 2020 at the start of the UK’s Covid-19 outbreak. Coupled with declining sentiment around job opportunities and career progression, down two percentage points, and sentiment on job security remaining flat, quarter-on-quarter, consumers are reflecting concerns around job prospects by adopting more recessionary spending behaviours.

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This comes at a time when CFOs of the UK’s largest firms attach a 78% probability to the UK falling into recession in the next 12 months.

Ian Stewart, chief economist at Deloitte, commented: “High inflation has driven consumer sentiment sharply lower this year despite a red hot labour market. Now consumers are starting to worry about the outlook for jobs. With inflation elevated, interest rates on the rise and the labour market starting to cool the squeeze on spending is likely to intensify.”

Brits To Support Local High Streets This Festive Season
Despite the cost-of-living crisis causing consumers to limit their spending, 83% of British consumers stated “it’s critical to support local high streets” this festive season. Which will be a welcome relief for independent retailers, as 87% cited that the end of year sales are the most important commercial event of the year.

The findings are revealed in the new ‘The Seasonal Shopping Snapshot’ research report from Ankorstore, Europe’s fastest-growing curated marketplace, which analysed consumer spending ahead of the festive season and the ongoing rising cost of living pressures facing retailers and consumers.

Ankorstore reveals that more than half (54%) of British independent retailers are expecting an uptick in profits and sales volumes as they head into the festive shopping season, and that more than two-thirds (69%) remain optimistic consumers will continue to support their store in the months leading up to Christmas.

However, the research also adds that 60% of British consumers said that they will be spending less in shops and online due to rising costs, inflation and a pending recession. With millennials particularly feeling the pinch, with 67% adding that they will be spending less on luxuries and commodities as the cost-of-living crisis continues.

Consumers to spend less this Christmas
When it comes to present giving, 41% of consumers plan on buying fewer gifts for Christmas than they did last year, added the research, while 6% plan to buy no Christmas gifts at all. Over half of Brits (55%) said that quality was the most important attribute when it comes to finding the right present, followed by sustainability (30%), locally sourced (18%) and cruelty-free (14%).

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Commenting on the findings, Mary Portas, British retail expert and broadcaster, said in a statement: “People know how critical it is to shop local. A whopping 83% of them. Independent retail has been through the wringer in recent years but most of us know we’ve got to do our bit to support it.

“Thriving retail help us all. Busy local high streets provide community and connection. Online retail provides employment, inspiration – and a whole heap of products that you don’t get in brands with a thousand stores. Let’s spend our money wisely this Christmas.”

When it comes to festive retail trends across Europe, Ankorstore notes that it is a similar picture to the UK, as 80% of retailers said that they are facing reduced consumer spending power, an increase in energy prices (46%) and increased competition from big chains and e-commerce websites (43%).

The research adds that retailers in the UK, Germany, France, Spain and Italy all refer to the same strategies to combat these challenges and save money. Almost two-thirds (63%) of retailers across Europe are planning to reduce their energy consumption by cutting back on heating and by stopping illuminating shops at night, while more than half (54%) will double down on their communication strategies via social media and flyers to encourage existing and new customers to shop, and 47% will limit stock buying and storage and instead restock last minute.

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