Rising inflation and lacklustre wage growth has hit British households and sent consumer confidence sliding in the first three months of the year, according to a new survey.
Four of Deloitte’s six measures of consumer optimism dropped in its latest quarterly survey, and its overall confidence barometer slipped by one percentage point compared to the previous quarter.
The latest reading came in at minus 7 per cent, down from minus 6 per cent seen in the fourth quarter. That’s still broadly in line, however, with the three-year average.
The survey of 3,000 consumers found that confidence in disposable income fell by three percentage points to minus 17 per cent this quarter – 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,” Ian Stewart, chief economist at Deloitte, said.
“In March, the rate of inflation stood at 2.3 per cent, above the Bank of England’s 2 per cent 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,” he added.
But Mr Stewart said record levels of employment and low interest rates should help the UK avoid a sharp drop in consumer spending.
Deloitte’s latest Consumer Tracker also revealed signs of a slowdown in consumer spending, with spending on discretionary items dropping by four percentage points to minus 4 per cent for the period.
“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,” Ben Perkins, head of consumer research at Deloitte, said.
“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,” he added.
UK retail sales posted their biggest quarterly fall in seven years in March, seeming to confirm doubts about the robustness of the consumer-led economy in the wake of June’s Brexit vote, according to the figures published by the Office for National Statistics on Friday.
By volume, sales in the first quarter of this year were down 1.4 per cent compared to the previous quarter, and down 1.8 per cent compared with February this year.
