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Consumer Disposable Income Confidence Falls To Record Low, As Rising Cost Of Living Takes Hold

The Deloitte Consumer Tracker released data for Yorkshire & the Humber for Q1 which showed

Consumer confidence fell by four percentage points in Q1 2022, to -13%, a six percentage point drop year-on-year;
Amongst individual measures of consumer confidence, household disposable income saw the sharpest quarter-on-quarter fall of 26 percentage points, reaching -47% net;
Compared to Q4 2021, essential spending rose the highest in the transport category, up 30 percentage points, contrasting with clothing and footwear which saw the biggest decline, down 12 percentage points;
Discretionary spend rose the highest on holidays and hotels, reflecting the national trend, up by 16 percentage points;
Looking ahead, consumers in Yorkshire and the Humbers anticipate essential spending on groceries would rise by 34 percentage points and discretionary spending on alcohol and tobacco would rise by 18 percentage points. Consumers expect to reduce their discretionary spending the most on going out, -9 percentage points.
The first quarter of the year saw leisure spend decline the most in the at-home entertainment (-14 percentage points). Yorkshire and Humber consumers indicate that they are likely to spend less on going to the gym or playing sport in Q2 (-6 percentage points).

Andrew Coticelli

Andrew Coticelli, partner and consumer business lead in Yorkshire and the Humber said:

“Just as we are seeing at a national level, Yorkshire and the Humber consumers are also being cautious with their money as the cost of living increases. Overall consumer confidence for the region was down four percentage points; just slightly improved on the national picture. Utility bills, groceries, transport and everyday household items are driving essential spend. However, as we are seeing at a national level, there remain some consumers who still have discretionary spending power. For these consumers, a combination of pent-up demand and the end of COVID-19 restrictions has sparked interest in holidays and hotels.”

For the national picture the first quarter of the year has seen net consumer confidence fall five percentage points, to -16%, taking its biggest dip since 2020 and undoing the consumer confidence recovery seen since the start of 2021. With rising household bills, and higher prices at both fuel pumps and grocery checkouts, the latest Deloitte Consumer Tracker reveals that over half of consumers (52%) are now seeing their overall personal expenditure increase.

The Deloitte Consumer Tracker is based on responses from 3,091 UK consumers between 18th and 21st March 2022, as all remaining COVID-19 restrictions were removed.

Of all the Consumer Tracker’s measures of confidence, Q1’s findings on disposable income is the most stark, with a quarter-on-quarter decline of 23 percentage points, reaching a record low of -49%.

Céline Fenech, consumer insight lead at Deloitte, commented: “Consumers are clearly feeling the pinch of rising living costs. With heightened energy price caps and increased national insurance both since coming into effect, it’s likely we’ll see consumer sentiment on their disposable income decline further in the quarter ahead.”

Contrasting spending behaviour splits consumers

Greater expenditure in Q1 was most notable amongst essential item categories, with quarter-on-quarter growth of eight percentage points, reaching the highest level since the Consumer Tracker began.

However, the index also reveals an emerging consumer polarisation by household income as spending behaviours are split.

Fenech continued: “Essential spending has increased significantly in the first quarter of the year, but so too has discretionary spending; unveiling a clear divergence in consumer spending patterns.

“Higher spending on transport and on everyday household items have seen the biggest quarter-on-quarter leap amongst essential categories. This increase is mainly due to price inflation and is affecting the lowest income households the most. By contrast, within the discretionary categories the highest income households were more likely to have been spending on holidays, going out, and eating in restaurants. For these higher-earners, pent-up demand for socialising and travelling – following the end of all COVID-19 restrictions in Q1 – is possible due to savings accumulated over lockdown when spending opportunities were limited.”

Just 5% of households with an income of £10,000 and under were able to save in the last quarter, compared to 38% of households with an overall income of £100,000. Lower income households were also more likely to see a decrease in their savings (41%) versus 30% of higher income households.

Consumers remain pessimistic on the economy, but positive fundamentals signal spending growth

Consumer sentiment on the state of the UK economy fell a further 20 percentage points in the first quarter of 2022, reaching -73%. This is a return to levels last seen in Q4 2020; a time when many parts of the UK entered restrictive COVID-19 lockdown tiers. However, continued strength in the job market, record house price growth, and savings built up during the downturn, means overall consumer spending is still expected to grow this year.

Ian Stewart, chief economist at Deloitte, commented:
“While economic sentiment this quarter has fallen, a number of factors suggest that overall consumer spending will continue to increase, even as real earnings decline.

“Rising employment and higher asset prices are supportive of spending and not all consumers rely on earned income to finance spending. Some can draw on built-up savings, or can fund spending by borrowing, having paid down credit card and other consumer debt over the last two years. With interest rates at still-low levels, they are well placed to do so.

“However, just because overall spending is rising doesn’t mean that everyone’s is. Higher income households are likely to account for a disproportionate share of spending this year.”

Consumers continue to book holidays for 2022

With the exception of in-home entertainment and betting, spending was up across all leisure categories in Q1. Long breaks and eating out saw the biggest quarter-on-quarter spend increase – up eight percentage points, respectively – and consumers intend to continue their leisure pursuits into the second quarter.

Simon Oaten, partner for hospitality and leisure at Deloitte, said: “For those consumers that can afford it, holiday bookings were high up the agenda in the first quarter. This was in part driven by school half-term breaks but also as many popular international destinations loosened, or removed entirely, their COVID-19 entry requirements.

“If higher income household spending power remains strong, it would bring a much-needed boost to the travel and hospitality industry as it continues its recovery. However, this could be undermined if significant travel disruption continues and compounds with economic uncertainty to supress spending on foreign holidays.

“For ‘staycationers’, June’s back-to-back Diamond Jubilee bank holiday weekend should also see a welcome uplift to domestic tourism.”