A spring in their step?
The latest Deloitte Consumer Tracker shows that the level of confidence about household disposable income is at its highest in over three years and is getting closer to positive territory. Supported by a recovery in spending power and further falls in unemployment, consumers' finances are starting to normalise. Such an improvement points to an acceleration in consumer activity and suggests that 2015 may well be the best year for consumer expenditure since 2005. However, a cloud remains on the horizon: nearly half of consumers are concerned that the forthcoming UK General Election will have an impact on their financial situation.
In Q1 2015 consumers' confidence in their household level of disposable income rose by seven points compared to a year ago and is now 30 points higher than when the survey began in Q3 2011. This improvement in sentiment about level of disposable income was at least twice as high as the improvement observed in all the other measures of confidence over the last three years.
An improvement in disposable income has been the main driver of the recovery in our consumer confidence index. In the first quarter of this year, confidence was three points higher than in the previous quarter and two points higher compared to the same period a year ago.
In another sign of the strength real income growth the Tracker shows that more consumers were able to increase their savings this quarter. Moreover, Bank of England data suggests that the growth in unsecured lending has levelled off in Q1 2015 indicating rising incomes might have lessened the need for some consumers to resort to borrowing.
The Tracker also shows that rising incomes, combined with falling prices for essentials, including food, energy and petrol, have supported growth in discretionary spending. However the growth in discretionary categories is mainly in services such as leisure and travel suggesting that the retail sector is a little more subdued than the wider macroeconomic environment.
Looking ahead, consumers' improved financial positions should continue to support sustainable rises in spending this year. According to the Tracker, consumers are also planning to continue to pay more into their savings. Furthermore, with low interest rates, household debt interest payments as a share of income are also expected to remain low.
The foundations for a consumer recovery, led by falling unemployment and rising incomes, have been laid. However, consumers are still concerned about the upcoming General Election and the impact it will have on their finances.
To read this article in full, please click here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
