Q4 2015

The Deloitte Consumer TrackerConsumers end 2015 in buoyant mood

Overall consumer confidence (q/q)*

* Net balances

Key Indicators

Confidence in level of disposable income (q/q)*

Essentials spending (y/y)*

Discretionary spending (y/y)*

ONS retail sales value growth Dec-15 (y/y)

CPI inflation Dec-15 (y/y)

LatestPrevious

-5% -7%

Previous Latest

-13% -11%

Previous Latest

+9% +5%

Previous Latest

-2% 0%

Previous Latest

+2.2% -0.3%

Previous Latest

+ 0.5% +0.2%

Deloitte’s latest Consumer Tracker shows that consumers ended 2015 in a buoyant mood, with consumer confidence rising again to produce the strongest fourth quarter reading since the Tracker began.

Consumer confidence rose by one percentage point year-on-year in Q4 2015, with improvements seen in three of the six key components in the index compared to the same time last year. One component – level of debt – stayed flat, while two declined.

Consumers reported feeling more confident about their job security, job opportunities and career progression, and household disposable income. The biggest improvement has been in confidence in household disposable income, which is the highest it has ever been.

Confidence edged lower in the fourth quarter. The main driver of this decline was a six percentage point fall in consumers’ general sense of health and wellbeing. Our data shows that this is an established seasonal effect that can be explained by consumers feeling less positive about their health following a period of excess in the run up to Christmas.

Consumers are spending less on essential items than they did last year, thanks, in part, to continued low inflation in key categories such as groceries and transport.

While lower commodity and consumer prices have put downward pressure on sales of grocery products, the supermarket sector had a better Christmas than many had expected. The big four grocers reported better results over the period than predicted as non-food categories performed particularly well.

While consumer confidence remains robust, retailers faced a difficult set of conditions over Christmas which was reflected in a mixed performance over the festive period. Spending rose in categories such as food and electrical appliances, but other categories suffered due to warm weather and heavy discounting, especially in clothing and footwear where sales fell by 5.3% as winter fashion lines proved hard to shift. Overall retail sales in December were down. Consumers were slow to get going over the rain-soaked Christmas period, and the poor weather helps to explain the strong performance of online as shoppers chose to stay at home and buy online instead of hitting the high street.

The leisure sector performed well with the wet weather in November and December having little effect on consumers appetite for eating and going out.

Overall, consumers are becoming less defensive. Cost-conscious, defensive spending behaviour is at the lowest level since the Tracker began. In particular, the Tracker shows consumers placing less emphasis on saving money by buying fewer items. This has coincided with a shift to more confident, expansionary behaviours, with consumers more willing to increase their volume of purchases.

The outlook for consumer activity in 2016 is positive with low inflation, low interest rates, rising wages and declining unemployment supporting consumer spending power. However, the consumer will have to navigate some significant uncertainties – not least the possibility of a referendum on EU membership taking place as early as June – that could rock the boat.

AuthorsBen PerkinsHead of ResearchConsumer Business020 7307 2207beperkins@deloitte.co.uk

Aino TanResearch Manager Consumer Business020 7007 4406aintan@deloitte.co.uk

Rebecca ThomsonResearch ManagerConsumer Business020 7007 0891 rebthomson@deloitte.co.uk

Chart 1. Deloitte Consumer ConfidenceNet % of UK consumers who said their level of confidence has improved over the past three months

-20%

-16%

-12%

-8%

-4%

0%

Q42015

Q32015

Q22015

Q12015

Q42014

Q32014

Q22014

Q12014

Q42013

Q32013

Q22013

Q12013

Q42012

Q32012

Q22012

Q12012

Q42011

Q32011

Deloitte Insight

Three of the six key measures for the index rose compared to the same time last year. Consumers reported feeling more confident about their job security, job opportunities and career progression, and household disposable income.

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

Q4 2011 Q4 2012 Q4 2013 Q4 2014 Q4 2015

-50%

-40%

-30%

-20%

-10%

0%

10%

Your householddisposable income

Your general health and wellbeing

Your jobsecurity

Your levelof debt

Your job opportunities/

career progression

Your children’seducation and

welfare

-39%

-33%

-27%

-18%

-11%

-15% -1

2%

-6%

-7%

-6%

-13%

-13%

-8% -6

% -5%

-10%

-15% -1

2%

-16%

-17%

-1%

-3% -1

%

+2%

0%

-13% -12% -1

0%

-4% -4%

Quarter-on-quarter the index has fallen, with confidence dropping two points compared to Q3 2015. This was largely driven by a six percentage point fall in consumers’ general sense of health and wellbeing, and represents a seasonal dip in line with previous years’ data as consumers adjust to post-Christmas levels of consumption and the January blues.

Chart 3. Consumer sentiment about general health and wellbeing

Net % of consumers who said their wellbeing has improved over the past three months

-18%

-16%

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

Q4 2015

Q3 2015

Q2 2015

Q1 2015

Q4 2014

Q3 2014

Q2 2014

Q1 2014

Q4 2013

Q3 2013

Q2 2013

Q1 2013

Q4 2012

Q3 2012

Q2 2012

Q1 2012

Q4 2011

Q3 2011

The biggest improvement has been in confidence in household disposable income, which is the highest it has ever been. The measure has climbed 7 points compared to a year ago and is now at -11.

Chart 4. Consumer sentiment about household disposable income

Net % of UK consumers who said their level of confidence has improved over the past three months

-50%

-40%

-30%

-20%

-10%

0%

Q4 2015

Q3 2015

Q2 2015

Q1 2015

Q4 2014

Q3 2014

Q2 2014

Q1 2014

Q4 2013

Q3 2013

Q2 2013

Q1 2013

Q4 2012

Q3 2012

Q2 2012

Q1 2012

Q4 2011

Q3 2011

Consumer confidenceStrongest January on record for consumer confidence

2 | The Deloitte Consumer Tracker Q4 2015 Consumers end 2015 in buoyant mood

Household disposable income has risen in the last year. This means consumers have more cash available for discretionary spending.

Chart 5. Household disposable income% change y-on-y UK household disposable income

Source: Office for National Statistics (ONS)

-4-3-2-1012345

Q3

2015

Q2

2015

Q1

2015

Q4

2014

Q3

2014

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2014

Q1

2014

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2013

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2013

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2013

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2013

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2007

Q1

2007

Q4

2006

Q3

2006

Q2

2006

Q1

2006

The proportion of consumers reporting redundancies and reduction or loss of income in their household has remained flat compared to a year ago.

Chart 6. Changes in household circumstancesPeople who said they had been laid off, experienced loss in income, or started a new job

0%

4%

8%

12%

16%

Q4

2015

Q3

2015

Q2

2015

Q1

2015

Q4

2014

Q3

2014

Q2

2014

Q1

2014

Q4

2013

Q3

2013

Q2

2013

Q1

2013

Q4

2012

Q3

2012

Q2

2012

Q1

2012

Q4

2011

Q3

2011

Being laid off/made redundant/lost job

Reduction/loss of some income (e.g. working reduced hours, etc.)

Falling unemployment has helped boost consumer confidence by improving job security and job opportunities.

Chart 7. Unemployment rateUK LFS: Unemployment rate, all aged 16 and over, seasonally adjusted

0%1%2%3%4%5%6%7%8%9%

Source: ONS

01/10/1501/10/1401/10/1301/10/1201/10/1101/10/1001/10/0901/10/0801/10/0701/10/06

Consumer confidenceDisposable income rises as unemployment falls

The Deloitte Consumer Tracker Q4 2015 Consumers end 2015 in buoyant mood | 3

The falling costs of essential items have enabled consumers to spend more on discretionary, big ticket items.

Chart 8. Category spending over the past three monthsNet % UK consumers spending more by category

-15%

-10%

-5%

0%

5%

10%

15%

20%

Essentials Small-ticket items Big-ticket items

Q4

2015

Q3

2015

Q2

2015

Q1

2015

Q4

2014

Q3

2014

Q2

2014

Q1

2014

Q4

2013

Q3

2013

Q2

2013

Q1

2013

Overall, consumer expenditure has risen as low inflation and low interest rates continue to help boost consumer spending power.

Chart 9. Consumer expenditure, constant prices, seasonally adjusted % change year-on-year

Source: ONS

-6%-5%-4%-3%-2%-1%0%1%2%3%4%5%

Q3

2015

Q2

2015

Q1

2015

Q4

2014

Q3

2014

Q2

2014

Q1

2014

Q4

2013

Q3

2013

Q2

2013

Q1

2013

Q4

2012

Q3

2012

Q2

2012

Q1

2012

Q4

2011

Q3

2011

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2011

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2011

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2007

Q3

2007

Q2

2007

Q1

2007

Q4

2006

Q3

2006

Q2

2006

Q1

2006

Spending on discretionary categories such as furniture and homewares, going out and electrical appliances continue to improve year-on-year, but spending in categories such as holidays, eating out and short breaks are stagnating at a similar level to this time last year. -30%

-20%

-10%

0%

10%

20%

30%

40%

50%

Chart 10. Category spending in the last three monthsNet % of UK consumers spending more by category

26%

-17% 15

%-9

%-4

%

-24% -2

1%

-11%

-7%

-3%

1% 0%

-9%

-1%

-1%

-18%

-1%

-15%

-1%

5% 5%

-11%

-12%

-7% -6%

-14%

-9% -8

% -4% -4%

-11%

-7%

-5

% -

3% -1%

-9%

Q4 2011 Q4 2012 Q4 2013 Q4 2014 Q4 2015

Gro

cery

sho

ppin

g fo

rfo

od a

nd n

on-a

lcoh

olic

beve

rage

s

Alc

ohol

ic b

ever

ages

and

toba

cco

Clo

thin

g an

d fo

otw

ear

Hou

sing

(e.g

. ren

t,m

ortg

age,

mai

nten

ance

)

Uti

lity

bills

(e.g

. wat

er,

elec

tric

ity,

gas

and

othe

r fu

els)

Furn

itur

e an

d ho

mew

are

Maj

or h

ouse

hold

app

lianc

es(e

.g. w

ashi

ng m

achi

ne, f

ridg

e,co

oker

,vac

uum

cle

aner

, etc

.)

Land

line/

mob

ile p

hone

,In

tern

et a

nd c

able

/TV

subs

crip

tion

s

Elec

tric

al e

quip

men

t(e

.g. P

Cs/

lapt

op, t

elev

isio

n,m

obile

pho

ne d

evic

e, e

tc.)

Goi

ng o

ut (e

.g. c

inem

a,th

eatr

e, c

once

rts,

etc

.)

Res

taur

ants

and

hot

els

(eat

ing

out

and

shor

t br

eak)

Hol

iday

s (lo

ng b

reak

)

Pens

ions

and

insu

ranc

e

Educ

atio

n

Hea

lth

Tran

spor

t

0%2%

-2%

-4%

3%1% 1%1%

-1%

0% 2%0%

-1%

1% 1%

4%2%

4%

1%

4%8%

11%

9% 8% 8% 8% 10%

6%4%

30%

19%

25%

20%

-1%

0%

32%

23%

15%19

%

40% 44

%44

%22

%12

%

Consumer spendingSpending power continues to rise

4 | The Deloitte Consumer Tracker Q4 2015 Consumers end 2015 in buoyant mood

Retail sales declined in December 2015 as an unprecedented level of discounting took its toll.

Chart 11. Retail sales% change year-on-year

Source: ONS

Volume (including automotive fuel) Value (including automotive fuel)

-4%

-2%

0%

2%

4%

6%

8%

10%

01/1

1/15

01/0

9/15

01/0

7/15

01/0

5/15

01/0

3/15

01/0

1/15

01/1

1/14

01/0

9/14

01/0

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01/0

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1/14

01/1

1/13

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5/13

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3/13

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1/13

01/1

1/12

01/0

9/12

01/0

7/12

01/0

5/12

01/0

3/12

01/0

1/12

01/1

1/11

01/0

9/11

01/0

7/11

01/0

5/11

01/0

3/11

01/0

1/11

01/1

1/10

01/0

9/10

01/0

7/10

01/0

5/10

01/0

3/10

01/0

1/10

Although inflation has started to rise gradually, it remains at historically low levels, helping to boost consumer spending power and reduce the amount people are spending on essentials.

Chart 12. Inflation (CPI)% change year-on-year

Source: ONS

Food & Non-alcoholic beveragesAlcoholic beverages, Tobacco & Narcotics

Clothing & FootwearHousing, Water & Fuels

Furn, HH equip & Repair of the houseHealth

TransportCommunication

Recreation & CultureEducation

Hotels, Cafes & RestaurantsMiscellaneous goods & Services

Total inflation 0.20.5

-0.61.1

10.0

1.72.3

4.8

0.62.7

0.7

1.52.1

0.20.31.0

0.35.0

-1.4-0.2

-2.9-1.7

-0.3-0.3

-0.2

-0.3

Dec 14 Dec 15

Overall consumers continue to move away from defensive spending behaviour, while expansionary behaviour returned to a three-year high. Fewer consumers reported buying fewer items and saving, while more consumers reported buying more items.

Chart 13. Expansionary and defensive spending behaviour% UK consumers spending more or less

Defensive Expansionary

21%

22%

23%

24%

25%

26%

27%

28%

Q42015

Q32015

Q22015

Q12015

Q42014

Q32014

Q22014

Q12014

Q42013

Q32013

Q22013

Q12013

Consumer spendingRetail sales record a surprise drop in December

The Deloitte Consumer Tracker Q4 2015 Consumers end 2015 in buoyant mood | 5

Consumer financeSaving and borrowing both rise again

More customers claim to be paying more money into a savings account than this time last year.

Chart 14. Changes in financial commitments in the last three months Net % of UK consumers

Mortgage(s) repayments Payment into a pensionCredit card(s)/loan(s) repayments Pay money to a savings accountNumber of credit card(s)/loan(s)

-20%

-10%

0%

10%

Q42011

Q12012

Q42012

Q12013

Q42013

Q12014

Q42014

Q12015

Q42015

The UK household savings ratio is, however, still at a historical low.

Chart 15. UK household savings ratio

0%2%4%6%8%

10%12%14%

Source: ONS

Q3

2015

Q2

2015

Q1

2015

Q4

2014

Q3

2014

Q2

2014

Q1

2014

Q4

2013

Q3

2013

Q2

2013

Q1

2013

Q4

2012

Q3

2012

Q2

2012

Q1

2012

Q4

2011

Q3

2011

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2011

Q1

2011

Q4

2010

Q3

2010

Q2

2010

Q1

2010

Q4

2009

Q3

2009

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2009

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2009

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2008

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2008

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2008

Q1

2008

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2007

Q3

2007

Q2

2007

Q1

2007

Q4

2006

Q3

2006

Q2

2006

Q1

2006

Q4

2005

Q3

2005

Consumer borrowing also continues to rise. This helped to boost spending in the final quarter of 2015.

Chart 16. Consumer creditNet secured and unsecured lending to individuals (% change year-on-year)

-4-202468

101214

UK personal borrowing: Dwellings-net lending (%YOY) SADL

UK consumer credit-net unsecured lending to individuals (% YOY)

Source: Thomson Reuters Datastream

11/1

/15

9/1/

157/

1/15

5/1/

153/

1/15

1/1/

1511

/1/1

49/

1/14

7/1/

145/

1/14

3/1/

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1/14

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/13

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137/

1/13

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/1/1

29/

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1/11

1/1/

1111

/1/1

09/

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1/10

11/1

/09

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093/

1/09

1/1/

0911

/1/0

89/

1/08

7/1/

085/

1/08

3/1/

081/

1/08

11/1

/07

9/1/

077/

1/07

5/1/

073/

1/07

1/1/

0711

/1/0

69/

1/06

7/1/

065/

1/06

3/1/

061/

1/06

11/1

/05

6 | The Deloitte Consumer Tracker Q4 2015 Consumers end 2015 in buoyant mood

In the coming months, consumers expect to continue to spend less on essentials such as groceries and utilities, allowing them to spend more on discretionary items.

-30%

-20%

-10%

0%

10%

20%

30%

40%

Chart 17. Category spending over the next three monthsNet % of UK consumers spending more by category

-25% -2

3% -21% -1

7%-1

7%

-23%

-22% -1

9% -17% -1

4%

-22%

-23% -2

0%-1

5% -13%

-21%

-22% -2

0%-2

4%-2

4%-2

6%-2

5%

-20% -1

6% -14% -1

0% -8% -4

%0% 0%1% 1% 1% 1%

4%8%

5%2%

5%9%

4%

10%

10%

7%

17%

30%

31%

12%

7%

-2%

-3%

-8%

-8% -4

%-4

% -1%

-1%

-1%

-1%

-1%

-1%

-2%

-3%

-8%

-9%

-2%

-2%

-2%

-1%

-6%

-6%

-19% -1

7% -13% -1

0% -9%

-16% -1

4%-1

4%

Q4 2011 Q4 2012 Q4 2013 Q4 2014 Q4 2015

Gro

cery

sho

ppin

g fo

rfo

od a

nd n

on-a

lcoh

olic

beve

rage

s

Alc

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ic b

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oth

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itur

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/TV

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Elec

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Hol

iday

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Pens

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Tran

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While many indicators suggest consumer confidence is set to keep rising, there are some hurdles to overcome in the next few months. The Brexit vote, for instance, will cause some uncertainty over interest rates. The latest edition of the Deloitte CFO Survey shows that nearly a third of UK CFOs remain undecided.

Chart 18. CFO attitudes to EU membership% of CFOs who gave the following responses when asked whether it is in the interests ofUK businesses for the UK to remain a member of the EU

Source: Deloitte CFO survey Q4 2015

0%

10%

20%

30%

40%

50%

60%

70%

80%

Don’t know,no strong opinion,prefer not to say

Too early to say:Depends on results

of renegotiation

NoYes

2015 Q2 2015 Q4

74%

62%

2% 6%

23%28%

1% 4%

In addition, the latest survey also showed a decline in CFO confidence and appetite for risk has declined for the third consecutive quarter, putting greater emphasis on the consumer sector to generate further growth.

15Q4

15Q1

14Q4

14Q1

13Q4

13Q1

12Q4

12Q1

11Q4

11Q1

10Q4

10Q1

09Q4

09Q1

08Q4

08Q1

07Q4

2007Q3

-80%

-60%

-40%

-20%

0%

20%

40%

60%

Mor

e op

tim

isti

cLe

ss o

ptim

isti

c

Chart 19. Business confidenceNet % of CFOs who are more optimistic about financial prospects for their company now than three months ago

Source: Deloitte CFO survey Q4 2015

OutlookPotential hurdles in the coming months

The Deloitte Consumer Tracker Q4 2015 Consumers end 2015 in buoyant mood | 7

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ContactsNigel WixceyIndustry Leader, Consumer Business020 7303 5007nigelwixcey@deloitte.co.uk

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

Graham PickettLead Partner, UK Travel, Hospitality and Leisure01293 761232gcpickett@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 4 and 6 January 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 per cent of consumers reported that they spent more rather than less.

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