UK consumers remained confident in Q4 2016

UK consumers remained confident in the fourth quarter of 2016, according to the latest Consumer Tracker report from Deloitte.

The firm’s survey of 3,000 UK consumers, carried out between 31 December 2016 and 2 January 2017, found that overall consumer confidence dropped in the quarter by one percentage point compared to the previous quarter, from -5% to -6%. Percentage point does not have the same meaning as percent.

But the figure in last quarter was still higher compared to the same period in 2015.

The report revealed that consumer confidence amongst 18 to 34 year-olds is at the highest level recorded.

Out of six measures which make up the confidence index, five saw positive year-on-year growth in the quarter.

Confidence about disposable income dropped by three percentage points compared with the previous year, down to -14%.

According to Deloitte, consumer remain confident about the “outlook for jobs, with sentiment around career progression improving while views on job security remain unchanged.”

Ian Stewart, chief economist at Deloitte, said: “So far, Brexit has not dented consumers’ confidence about the outlook for jobs, particularly among younger workers. Rising real wages, credit growth, high employment and rather more positive business confidence have bolstered consumer spirits and have kept consumer confidence levels stable, and higher than 12 months previously.

Later this week the Bank of England is expected to upgrade its growth forecasts following a better-than-expected economic performance at the end of last year.

However, higher inflation forecast over the coming months may put pressure on real consumer incomes and spending.  

Ian Stewart warned: “The New Year sees the arrival of headwinds that may challenge the current consumer-friendly economic conditions.

“Falling confidence about disposable income may be a sign that we are seeing the start of a squeeze on household incomes. Rising inflation, largely driven by the weakening pound in recent months, will also put pressure on real incomes and consumer spending in 2017.”

Ben Perkins, head of consumer research at Deloitte, commented that consumers “did not rein in their spending in the final months of the year”, as there was “a significant uplift in essentials spending in the lead up to Christmas.”

“Overall, the retail sector ended the year on a positive note, with many retailers reporting a bumper fourth quarter,” Perkins said.

“However, the consumer market will have to cope with a number of significant headwinds over the next 12 months. Confidence may be rocked by the combination of rising costs of goods and services, caused by inflation, and a possible slowdown of wage growth. This may impact consumers’ spending power and their willingness to spend on non-essential discretionary items in the first half of 2017,” he concluded.