The Deloitte Consumer TrackerConsumer confidence sees its largest increase in 18 months

Overall consumer confidence (q/q)*

Previous

Latest

-8%-5%

Confidencein level ofjob security (q/q)*

Previous

Latest

-10%-4%

Essentialsspending(q/q)*

Previous

Latest

+5%+5%

Discretionaryspending(q/q)*

Previous

Latest

-3%-2%

ONS retailsales value growthAug-16 (y/y)

Previous

Latest

+0.9%+3.9%

CPI inflation Aug-16 (y/y)

Previous

Latest

0%+0.6%

Key indicators

*Net balances

Q3 2016

Chart 1. Deloitte consumer confidence Net % of consumers who said their level of confidence has improved in the past three months

-20%

-15%

-10%

-5%

0%

Q316

Q216

Q116

Q415

Q315

Q215

Q115

Q414

Q314

Q214

Q114

Q413

Q313

Q213

Q113

Q412

Q312

Q212

Q112

Q411

Q311

In a sign that Brexit fears have been put to one side Deloitte’s consumer confidence index rose by three percentage points quarter-on-quarter, its largest increase in 18 months.

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

-50%

-40%

-30%

-20%

-10%

0%

10%

Your children’s education and welfareYour job opportunities/career progressionYour level of debtYour job securityYour general health and wellbeingYour household disposable income

Q316

Q216

Q116

Q415

Q315

Q215

Q115

Q414

Q314

Q214

Q114

Q413

Q313

Q213

Q113

Q412

Q312

Q212

Q112

Q411

Q311

Five out of the six measures which make up the confidence index rose between the second and third quarters.

There were strong gains in consumer confidence regarding job security, job opportunities and career progression.

Chart 3. Consumer confidence in job securityNet % of UK consumers who said their level of confidence in job security has improved over the past three months

-20%

-10%

0%

Your job security

Q316

Q216

Q116

Q415

Q315

Q215

Q115

Q414

Q314

Q214

Q114

Q413

Q313

Q213

Q113

Q412

Q312

Q212

Q112

Q411

Q311

-15 -15

-10-11

-10-12

-10 -10

-7 -7 -7-5 -5

-4 -4 -4 -4-3

-4-6 -6

The job security index rose by six percentage points compared to the last quarter after having fallen for three consecutive quarters.

Chart 4. Consumer confidence by regionNet % of UK consumers who said their level of confidence has improved over the past three months

-20%

-15%

-10%

-5%

0%

LondonLondon and South EastMidlands and South WestNorth

Q316

Q216

Q116

Q415

Q315

Q215

Q115

Q414

Q314

Q214

Q114

Q413

Q313

Q213

Q113

Q412

Q312

Q212

Q112

Q411

Q311

Confidence among Londoners fell by three percentage points this quarter and is now nine percentage points lower than it was a year ago.

In the meantime, confidence in the North is at its highest since the series began.

Chart 5. Consumer confidence in job security by regionsNet % of UK consumers who said their level of confidence in job security has improved over the past three months

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

LondonLondon and South EastMidlands and South WestNorth

Q316

Q216

Q116

Q415

Q315

Q215

Q115

Q414

Q314

Q214

Q114

Q413

Q313

Q213

Q113

Q412

Q312

Q212

Q112

Q411

Q311

Londoners were also less confident about the security of their jobs.

Given the capital’s dependence on financial services, a Brexit-led downturn could weaken its economy leading to job cuts, falling house prices and a decline in business activity.

Chart 6. Uncertainty% CFOs who rate the level of external financial and economic uncertainty facing their business as above normal, high or very high

Source: Deloitte CFO Survey

45%

55%

65%

75%

85%

95%

Q310

Q316

Q216

Q116

Q415

Q315

Q215

Q115

Q414

Q314

Q214

Q214

Q413

Q313

Q213

Q113

Q412

Q312

Q212

Q112

Q411

Q311

Q211

Q111

Q410

Uncertainty among the Chief Financial Officers of the UK’s largest corporates remains high post-Brexit.

Chart 7. Consumer expenditure % change y-o-y, final consumption expenditure, constant prices, SA

Source: ONS

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

Q216

Q215

Q214

Q213

Q212

Q211

Q210

Q209

Q208

Q207

Q206

Londoners were also less confident about the security of their jobs.

Given the capital’s dependence on financial services, a Brexit-led downturn could weaken its economy leading to job cuts, falling house prices and a decline in business activity.

Chart 8. Essentials vs discretionary spending in the last three monthsNet % UK consumers spending more by category

-20%-15%-10%

-5%0%5%

10%15%20%

Q316

Q216

Q116

Q415

Q315

Q215

Q115

Q414

Q314

Q214

Q114

Q413

Q313

Q213

Q113

Q412

Q312

Q212

Q112

Q411

Q311

Essentials Discretionary

However, expenditure continues to shift from essentials to discretionary categories. Net spending on essentials was flat for the second consecutive quarter, while net spending on discretionary categories rose by one percentage point.

Chart 9. Category spending in the last three monthsNet % UK consumers spending more by category

-30%-25%-20%-15%-10%

-5%0%5%

10%15%20%

Q316

Q216

Q116

Q415

Q315

Q215

Q115

Q414

Q314

Q214

Q114

Q413

Q313

Q213

Q113

Q412

Q312

Q212

Q112

Q411

Q311

Retail spending Leisure spending

Moreover, the gap between leisure and retail spending is narrowing as consumers continue to favour spending on experiences such as holidays rather than on goods.

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

Value Volume

Aug AugAugAugAugAugAugAugAugAugAug-4-202468

101214

1615141312111009080706

The strength of consumer spending is reflected in the growth of retail sales since the beginning of 2016, with a 5.5 per cent rise in the three months to August 2016 compared to a year earlier.

Chart 11. Inflation% change year on year

Source: ONS

-4 -2 0 2 4 6 8 10

Food & Non-alcoholic beverages

Clothing & Footwear

Furniture & Householdequipment

Housing, Water & Fuels

Total inflation

Recreation & Culture

Miscellaneous goods& Services

Transport

Alcoholic beverages& Tobacco

Health

Hotels, Cafes& Restaurants

Communication

Education

15/08/16 15/08/15

4.810

4.11.1

2.31.82

1.81.4

2.11

0.80.8

0.7

0.6

0.4

0.4

0.6

-2.6

-2.4-2.2

--1.2

-2.6

-0.1

-0.9

Inflation remains low across most categories, with competition continuing to keep prices down in the grocery sector.

However, while overall inflation in August remained flat at 0.6 per cent, it has been rising since the start of 2016.

Chart 12. British pound sterling effective exchange rate index

Sep SepSepSepSepSepSepSepSepSepSepSepSepSepSepSepSepSepSepSep

Source: Bank of England

707580859095

100105110

97 16151413121110090807060504030201009998

UK retailers have seen their costs rise as a result of the introduction of the new higher minimum wage and the fall in the value of sterling.

The key question for retailers is how much of these increased costs they will be able to pass on to consumers while still protecting their margins.

Chart 13. % Growth in average wages vs CPI Inflation% change year-on-year

Aug AugAugAugAugAugAugAugAugAugAug

Source: Thomson Reuters DataStream.

-4

-2

0

2

4

6

8

1615141312111009080706

UK inflation (CPI)Average earnings including bonuses

An extended period of falling prices, which has enabled consumers to increase their consumption despite subdued wage rises, could be drawing to an end.

UK consumer credit – Net unsecured lending to individuals (%y-on-y)

Chart 14. Consumer creditSecured and unsecured lending to individuals (% change year-on-year)

Source: Thomson Reuters DataStream

Aug AugAugAugAugAugAugAugAugAugAug-4-202468

101214

1615141312111009080706

UK personal borrowing: Dwellings – Net lending (%y-on-y) SADJ

Consumer borrowing remains high as the UK shopper defies pessimistic post-referendum forecasts.

Chart 15. Unemployment rate% change year-on-year

Source: Thomson Reuters DataStream

Jun JunJunJunJunJunJunJunJunJunJun1615141312111009080706

0

2

4

6

8

10

UK LFS: unemployment rate, all, aged 16 & over SADJ

The unemployment rate has continued to decline and stood at 4.9 per cent in the three months to June 2016.

Chart 16. Category spending over the next three monthsNet % UK consumers spending more by category

-25%-20%-15%-10%

-5%0%5%

10%15%

Q316

Q216

Q116

Q415

Q315

Q215

Q115

Q414

Q314

Q214

Q114

Q413

Q313

Q213

Q113

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Q112

Q411

Q311

Essentials Small-ticket items Big-ticket items

Consumers in our survey expect to spend more on essentials in the next three months.

Chart 17. Consumer indicators% change year-on-year

Unemployment

June 15

June 16

5.5%4.9%

Average weekly earnings growth rate

July 15

July 16

2.9%2.3%

Interest rates

Sep 15

Sep 16

0.5%0.25%

With the consumer-focused economic fundamentals still showing few signs of a slowdown since the end of June, we expect retail sales growth to continue into the fourth quarter.

Chart 18. UK GDP growth: Actual and forecast (%)

Quarter-on-quartergrowth

Year-on-yeargrowth

Source: ONS, consensus forecasts from The Economist and Deloitte calculations

20172016201520142013201220112010200920082007-7

-6-5

-4-3

-2-1

01

23

4 Forecasts

Growth forecasts remain positive with GDP expected to increase by 1.7 per cent in 2016, although slowing to 0.7 per cent in 2017.

Looking further ahead, two events could pose challenges to consumer spending power and sentiment: the prospect of higher inflation and the start of the formal Brexit process in 2017.

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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 16 and 19 September 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.