Q2 2016

Deloitte’s latest Consumer Tracker shows that consumer confidence in job security has fallen three points in the immediate aftermath of the EU referendum, and is down six points compared to this time last year.

Confidence in job opportunities has also fallen since last quarter, showing consumers feel less certain about their job prospects as the consequences of Brexit continue to unfold. Overall, our headline measure of consumer confidence remains at -8, its lowest level since Q4 2014.

When asked how the result of the EU referendum would impact upon their personal financial situation and spending habits in the next 12 months, consumers’ response was strongly negative. Consumers are also concerned about the affordability of their grocery and non-essential spending. Post-Brexit inflation forecasts predict a rise in the next year. The Treasury recently raised its forecast to an average of 1.3% inflation for 2016, up from 0.5% in June, and to 2.5% in 2017.

Sentiment about jobs among younger consumers is more negative than for older consumers. While overall confidence is flat quarter-on-quarter for 18-34 year olds due to an 18 point rise in health and well-being, their confidence about job security falls by seven points, and confidence in their career progression by nine points.

Consumer spending remains largely stable. Expenditure continues to shift from essentials to discretionary categories. Net spending on essentials was flat quarter-on-quarter, while net spending on discretionary categories rose by three points, suggesting more consumers are spending more in non-essential areas. This is reflected in retail sales growth of 2% in the first half of the year. However, leisure spending continues to grow at a faster rate than retail spending, as consumers prioritise spending on experiences.

It remains to be seen what impact political and economic uncertainty will have on the consumer market. Consumer-focused economic fundamentals remain favourable – for example, inflation, unemployment and the cost of borrowing are still all low – but for how much longer?

Consumers expect to spend more in most categories in the next three months, but beyond then their outlook is more cautious. Significantly, it is consumers in the higher social grades as well as younger consumers that are reporting lower levels of confidence for the next 12 months across a range of measures relating to their personal finances.

Overall consumer confidence (q/q)*

Previous

Latest

-8%-8%

AuthorsBen PerkinsHead of Research Consumer & Industrial Products020 7307 2207beperkins@deloitte.co.uk

Aino TanResearch Manager Consumer & Industrial Products020 7007 4406aintan@deloitte.co.uk

Rebecca ThomsonResearch ManagerConsumer & Industrial Products020 7007 0891rebthomson@deloitte.co.uk

Confidencein level ofjob security (q/q)*

Previous

Latest

-7%-10%

Essentialsspending(y/y)*

Previous

Latest

+5%+5%

Discretionaryspending(y/y)*

Previous

Latest

-5%-3%

ONS retailsales value growthJune-16 (y/y)

Previous

Latest

+1.3%+1.8%

CPI inflation June-16 (y/y)

Previous

Latest

+0.0%+0.5%

Key indicators

*Net balances

The Deloitte Consumer TrackerConfidence remains flat but job worries cloud outlook

Chart 1. Consumer sentiment about job securityNet % of UK consumers who said their level of confidence in job security has improved over the past three months

-20%

-16%

-12%

-8%

-4%

0%

Q216

Q116

Q415

Q315

Q215

Q115

Q414

Q314

Q214

Q114

Q413

Q313

Q213

Q113

Q412

Q312

Q212

Q112

Q411

Q311

Consumer confidenceOverall consumer confidence was flat

Consumers reported feeling less confident about the security of their jobs in the immediate aftermath of the EU referendum. The confidence readings fell three points from the previous quarter and is now down six points compared to this time last year.

Unemployment data up to May 2016 shows the unemployment rate in the UK has continued to fall over the past year, reaching its lowest level since 2005. This indicates that while consumers are clearly concerned about jobs, these concerns are not yet being reflected by the official statistics.

Three of the six measures of confidence fell compared to the same time last year. Confidence in job security, career opportunities and progression, and children’s education and welfare all fell. Confidence in disposable income, level of debt, and health and well-being all rose.

Overall consumer confidence was flat at -8, its lowest level since 2014.

Chart 2. UK consumer sentiment about personal situationNet % of consumers who said their level of confidence has improved in the past three months

Q2 2012 Q2 2013 Q2 2014 Q2 2015 Q2 2016

Yourhouseholddisposable

income

Your levelof debt

Your generalhealth andwellbeing

Your jobopportunities/

careerprogression

Your jobsecurity

Your children’seducation

and welfare

-40%

-30%

-20%

-10%

0%

10%

-36%

-29%

-18% -1

5% -14%

-8% -5

%-1

2% -11%

-12% -1

0%-3

%-5

%-7

%

-11%

-7% -4

%-4

%-1

0%

-2% 0% 2% 1%

-4%

-15% -1

3%

-8% -5

% -4% -1

%

Chart 3. Deloitte consumer confidence Net % of consumers who said their level of confidence has improved in the past three months

-20%

-16%

-12%

-8%

-4%

0%

Q216

Q116

Q415

Q315

Q215

Q115

Q414

Q314

Q214

Q114

Q413

Q313

Q213

Q113

Q412

Q312

Q212

Q112

Q411

Q311

2

The Deloitte Consumer Tracker Q2 2016 | Confidence remains flat but job worries cloud outlook

Consumer confidenceConfidence among high earners falls significantly

Sentiment about job security was significantly lower for younger consumers than it was for older consumers. It fell by seven points compared to the previous quarter for 18-34 year olds, but remained flat for those aged 55 and over.

Chart 4. Consumer sentiment about job security by age groupNet % of consumers who said their level of confidence has improved in the past three months

-30%

-20%

-10%

0%

10%

Q216

Q116

Q415

Q315

Q215

Q115

Q414

Q314

Q214

Q114

Q413

Q313

Q213

Q113

Q412

Q312

Q212

Q112

Q411

Q311

18-34 35-54 55+

Consumers earning over £100,000 a category representing only 2.3% of consumers surveyed, reported a fall in overall confidence of 13 points compared to last quarter, and a fall in job security of 28 points.

Chart 5. Consumer confidence for high earnersNet % of UK consumers with annual household earnings of over £100,000 who say their confidence has improved

-30%

-20%

-10%

0%

10%

20%

Q216

Q116

Q415

Q315

Q215

Q115

Q414

Q314

Q214

Q114

Q413

Q313

Q213

Q113

Q412

Q312

Q212

Q112

Q411

Q311

Consumer confidence Job security

People with an annual household income of less than £25,000 a year reported rises in confidence in nearly every category year-on-year, with the exception of job security, which has remained flat.

Chart 6. Overall confidence of low earnersNet % of UK consumers with annual household earnings of under £25,000 who say their confidence has improved

Q2 2012 Q2 2013 Q2 2014 Q2 2015 Q2 2016

Yourhouseholddisposable

income

Your levelof debt

Your generalhealth andwellbeing

Your jobopportunities/

careerprogression

Your jobsecurity

Your children’seducation

and welfare

-50%-45%-40%-35%-30%-25%-20%-15%-10%

-5%0%5%

-44% -4

1%-2

9% -26%

-19%

-20% -1

5%-8

%-1

0%-4

%

-20%

-20%

-14%

-20% -1

7% -15% -1

3%-7

%-1

0% -8%

-10% -8

% -5% -3

% -2%

1%-2

%-2

%

-7%

-7%

3

The Deloitte Consumer Tracker Q2 2016 | Confidence remains flat but job worries cloud outlook

Consumer spendingConsumer spending remains stable

On balance net consumer spending on essentials remains flat. However, the shift from essentials to discretionary spending continues, with net spending on both big and small ticket discretionary items rising.

The categories with the biggest quarter-on-quarter rises in net spending were alcoholic beverages, clothing and footwear, and long break holidays.

Chart 7. Essentials vs discretionary spendingNet % UK consumers spending more by category spending

-20%-15%-10%

-5%0%5%

10%15%20%

Q216

Q116

Q415

Q315

Q215

Q115

Q414

Q314

Q214

Q114

Q413

Q313

Q213

Q113

Q412

Q312

Q212

Q112

Q411

Q311

Essentials Small-ticket items Big-ticket items

Consumer expenditure data up to the first quarter of 2016 shows growth in spending is flattening, with a marginal fall of 0.1% in the growth rate from the first quarter of 2015.

Chart 8. Consumer expenditureAnnual % change year on year

-5%-4%-3%-2%-1%0%1%2%3%4%

Q116

Q115

Q114

Q113

Q112

Q111

Q110

Q109

Q108

Q107

Q106

Our data shows that over the last three months consumers report spending more in almost every category compared to last year. The only category where spending has fallen year-on-year is for long-break holidays. Quarter-on-quarter, every category with the exception of utilities has risen.

Chart 9. Category spending in the last three monthsNet spending in the last three months

Q2 2012 Q2 2013 Q2 2014 Q2 2015 Q2 2016

Gro

cery

shop

ping

for f

ood

and

non-

alco

holic

bev

erag

es

Alco

holic

bev

erag

esan

d to

bacc

o

Hou

sing

(e.g

. ren

t, m

ortg

age)

Util

ity b

ills (e

.g. w

ater

,el

ectri

city,

fuel

s)

Furn

iture

and

hom

ewar

e

Maj

or h

ouse

hold

app

lianc

es

Hea

lth

Tran

spor

t

Land

line/

mob

ile p

hone

,In

tern

et a

nd T

V su

bscr

iptio

ns

Elec

trica

l equ

ipm

ent

Goi

ng o

ut

Rest

aura

nts a

nd h

otel

s

Hol

iday

s (lo

ng b

reak

)

Clot

hing

and

foot

wea

r

-30%

-20%

-10%

0%

10%

20%

30%

4

The Deloitte Consumer Tracker Q2 2016 | Confidence remains flat but job worries cloud outlook

Retail sales data shows sales values have performed relatively well over the first half of the year. In June, retail sales values were up by 1.8% on the previous year.

Chart 10. Retail sales% change in volume and value year-on-year

-6%-4%-2%0%2%4%6%8%

Value Volume

Q216

Q215

Q214

Q213

Q212

Q211

Q210

Q209

Q208

Q207

Q206

Inflation is still low across most categories, with competition keeping prices down in grocery and promotions doing so in clothing and footwear. However, in June overall inflation rose to 0.5% from 0.3% in May. Inflation forecasts have started to predict a larger rise in the second half of 2016 and into 2017.

Chart 11. Inflation (CPI)% change year-on-year

0.5%0.0%

0.8%

1.1%0.1%

-1.0%

-0.2%-1.8%

-0.3%

-0.7%

-2.9%-2.2%

2.3%1.9%

3.7%1.1%

2.7%1.6%

0.5%2.3%

-0.5%

-0.8%

0.1%0.4%

4.8%10.0%

June 2016 June 2015

Food & Non-alcoholic beverages

Alcoholic beverages, Tobacco & Narcotics

Clothing & Footwear

Housing, Water & Fuels

Furn,HH equip & Repair of the house

Health

Transport

Communication

Recreation & Culture

Education

Hotels, Cafes & Restaurants

Miscellaneous goods & Services

Total inflation

Compared to a year ago, the proportion of consumers displaying both expansionary and defensive behaviours has remained static. The gap between the two has continued to narrow quarter-on-quarter, suggesting consumers are becoming more measured in their spending.

Chart 12. Expansionary and defensive spending behaviour% UK consumers spending more or less

20%

22%

24%

26%

28%

Q216

Q116

Q415

Q315

Q215

Q115

Q414

Q314

Q214

Q114

Q413

Q313

Q213

Q113

Q412

Q312

Q212

Q112

Q411

Defensive Expansionary

Consumer spendingConsumer spending remains stable

5

The Deloitte Consumer Tracker Q2 2016 | Confidence remains flat but job worries cloud outlook

BrexitUncertainty over the next 12 months

When asked about prospects for the coming 12 months in the light of the result of the EU referendum, consumers’ response was strongly negative in all seven areas. Non-essential spending is the area where consumers feel least confident over the next 12 months. This was closely followed by their overall personal financial situation, and savings and investments. UK house prices was the area where people feel least concerned.

People in higher social grades reported significantly lower levels of confidence across all measures than people in lower social grades.

Younger consumers, who in the past have shown greater levels of optimism, are significantly more negative about the coming 12 months than older consumers.

Chart 13. Consumer confidence after EU ReferendumNet % of UK consumers who said their confidence about the next 12 months has improved

Your

spe

ndin

g on

non-

esse

ntia

l ca

tego

ries

e.g.

ho

liday

s, go

ing

out,

etc.

Your

ove

rall p

erso

nal

finan

cial s

ituat

ion

Your

sav

ings

/in

vest

men

ts

Your

spe

ndin

g on

gr

ocer

y sh

oppi

ng fo

r fo

od a

nd n

on-a

lcoho

lic

beve

rage

s

Your

inco

me

befo

reta

x e.

g. w

ages

,ov

ertim

e, b

onus

Your

job

secu

rity

Affo

rdab

ility

UK

hous

e pr

ices

-40%

-30%

-20%

-10%

0%

-37% -35% -35% -33%-25%

-19%-14%

Chart 14. Consumer confidence by social grade Net % of UK consumers who said their confidence about the next 12 months has improved

-50%

-40%

-30%

-20%

-10%

0%

-41% -3

3%

-40%

-29%

-38% -3

0%

-37%

-28% -27% -2

2% -21% -1

7%

-17%

-9%

ABC1 C2DE

Your

spe

ndin

g on

non-

esse

ntia

l ca

tego

ries

e.g.

ho

liday

s, go

ing

out,

etc.

Your

ove

rall p

erso

nal

finan

cial s

ituat

ion

Your

sav

ings

/in

vest

men

ts

Your

spe

ndin

g on

gr

ocer

y sh

oppi

ng fo

r fo

od a

nd n

on-a

lcoho

lic

beve

rage

s

Your

inco

me

befo

reta

x e.

g. w

ages

,ov

ertim

e, b

onus

Your

job

secu

rity

Affor

dabi

lity

UK

hous

e pr

ices

Chart 15. Consumer confidence by age Net % of UK consumers who said their confidence about the next 12 months has improved

18-24 25-34 35-44 45-54 55+

Your

ove

rall

pers

onal

fina

ncia

l s

ituat

ion

Your

inco

me

befo

reta

x e.

g. w

ages

,ov

ertim

e, b

onus

Your

spe

ndin

g on

groc

erys

hopp

ing

for

food

and

non

-al

coho

lic b

ever

ages

Your

spe

ndin

g on

non

-es

sent

ial c

ateg

orie

se.

g. h

olid

ays,

goin

gou

t, et

c.

Your

sav

ings

/in

vest

men

ts

Affor

dabi

lity

UK

hous

e pr

ices

Your

job

secu

rity

-50%

-40%

-30%

-20%

-10%

0%

-41

%

-30

%

-42

%-3

8% -3

0%

-32

%

-6%

-29

%-2

7% -2

1%

-34

%

-15

%

-36

% -31

% -23

%

-34

% -26

%

-42

%-4

0% -3

2%

-48

%

-30

%

-45

%-4

3% -3

4%

-37

%

-33

%

-38

%-3

9% -3

1%

-7%

-12

%

-18

%-2

1%

-11

%

6

The Deloitte Consumer Tracker Q2 2016 | Confidence remains flat but job worries cloud outlook

OutlookPossible headwinds in the coming months

In the coming three months consumers plan to spend more on holidays and going out, groceries and big ticket items such as furniture and appliances. They expect to spend less on clothing and footwear.

Chart 16. Spending over next three monthsNet % of UK consumers spending more by category

Q2 2012 Q2 2013 Q2 2014 Q2 2015 Q2 2016

Clot

hing

and

foot

wea

r

Rest

aura

nts

and

hote

ls(e

atin

g ou

t and

shor

t bre

ak)

Alco

holic

bev

erag

esan

d to

bacc

o

Goi

ng o

ut (e

.g. c

inem

a,th

eatr

e, c

once

rts,

etc.

)

Elec

tric

al e

quip

men

t

Maj

or h

ouse

hold

appl

ianc

es

Furn

iture

and

hom

ewar

e

Hol

iday

s (lo

ng b

reak

)

Hou

sing

(e.g

. ren

t,m

ortg

age,

mai

nten

ance

)

Tran

spor

t

Gro

cery

sho

ppin

g fo

rfo

od a

nd n

on-a

lcoh

olic

beve

rage

sU

tility

bills

(e.g

. wat

er,

elec

tric

ity, g

as a

ndot

her f

uels)

-20%

-10%

0%

10%

20%

Chart 18. Economic confidenceConsumer confidence in the general economic situation over the coming 12 months

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

Q216

Q215

Q214

Q213

Q212

Q211

Q210

Q209

Q208

Q207

Q206

Source: GfK

Chart 17. Deloitte UK CFO SurveyNet % of CFOs who are more optimistic about the financial prospects of their company than three months ago

-80%-70%-60%-50%-40%-30%-20%-10%

0%10%20%30%40%50%

Q216

Q315

Q314

Q313

Q312

Q311

Q310

Q309

Q308

Q307

Consumers’ confidence in the wider economy has seen a sharp fall since the EU referendum. Confidence in the general economic situation is now 33 points lower than at the same time last year, as uncertainty about the UK’s prospects once it leaves the EU affects consumer sentiment.

Sentiment among the Chief Financial Officers of the UK’s largest corporates has fallen sharply in the wake of the EU referendum, the Deloitte CFO survey has shown in Q2 2016. Perceptions of uncertainty have soared in the wake of the vote to levels associated with the euro crisis five years ago. The spike in uncertainty has had an immediate effect on business sentiment with optimism dropping to the lowest level since the survey started in 2007, lower than in the wake of the failure of Lehman Brothers in late 2008.

7

The Deloitte Consumer Tracker Q2 2016 | Confidence remains flat but job worries cloud outlook

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Contacts

Nigel WixceyIndustry Leader, Consumer & Industrial Products020 7303 5007 nigelwixcey@deloitte.co.uk

Ian GeddesLead Partner, UK Retail020 7303 6519 igeddes@deloitte.co.uk

Graham PickettLead Partner, UK Travel, Hospitality and Leisure01293 761232 gcpickett@deloitte.co.uk

About this researchThe Deloitte Consumer Tracker is based on a consumer survey carried out by independent market research agency, YouGov, on our behalf. This survey was conducted online with a nationally representative sample of over 3,000 UK adults aged 18+ between 24 and 27 June 2016.

A note on the methodologySome of the figures in this research show the results in the form of a net balance. This means that in a survey of 100 respondents, assume that 30 reported they are spending more, 50 reported no change and 20 reported they are spending less. The net balance is calculated by subtracting the number that reported they spent less from the number that reported they spent more, i.e. 30 – 20 = 10. This means 10% of consumers reported that they spent more rather than less.