Consumer confidence and financial difficulty in July 2020
Consumer confidence in their household finances improved in July, but confidence in the future of the UK economy remains very low despite the further easing of restrictions over the preceding month.
Improvements in confidence are not consistent across groups. Confidence in household finances among those who are furloughed dropped slightly compared to the previous month, although fewer people reported being furloughed compared to previous surveys (11% in July down from 18% in June).
Incidence of financial difficulty is higher among those who have been furloughed, even before the Coronavirus Job Retention Scheme begins to be wound down. 13% of this group reported having defaulted on a bill in the past month, compared to 4% of those still working as usual.
A mixed picture of consumer confidence
Which?’s survey of consumer confidence has found a clear difference between how consumers feel about their own financial situation and their outlook for the UK economy as a whole. Confidence in both the current and future state of household finances continued to improve up in July, but confidence in the future of the UK economy did not.
Most consumers feel confident about their current financial situation. 56% think that their household is in a good financial situation, while only 14% think it is bad, giving a net balance of +42. This is the strongest level ever recorded by the Which? Consumer Insight Tracker. This may be because enforced reductions in spending have increased the level of savings of some households, while those who have experienced little or no impact on income as a result of the crisis may have a relative feeling of financial stability.
Similarly, people are increasingly confident about their future financial situation. This measure plummeted to -43 in March, but has now improved to a level similar to that before the coronavirus crisis (-8 this month).
However, there is a widening disparity between confidence in household finances and consumers’ wider outlook on the UK economy. Confidence in the future economy partially recovered in May, but has since stagnated and remains deeply pessimistic at -55 points. This is despite the re-opening of large sections of the economy, such as non-essential retail and hospitality.
Although the increasing confidence in household finances is encouraging, not all consumers are feeling more positive. Confidence in current household finances actually fell among workers who have been furloughed, given reduced hours or put on enforced leave as a result of the coronavirus crisis, from +20 in June to +15 in July. This contrasts with an increase from +41 in June to +50 in July for those working full-time.
In part, this divergence is due to a change in the composition of the furloughed group. The proportion of our sample who are in this group fell to 11% this month, compared to 18% in June and 20% in May. This reflects that some people are returning to work now that the economy has opened up in recent weeks, but that those still affected have a much less positive outlook on their current finances.
Furloughed workers more likely to be experiencing financial difficulty
Similar to results reported in previous updates on consumer finances during the pandemic, levels of financial distress remain fairly stable. In many consumer groups, there has been little or no evidence of increasing default rates or debt during the crisis, indicating that government interventions such as payment holidays and the job retention scheme have to an extent managed to keep default rates and the taking on of debt at bay.
However, as with consumer confidence, the situation is less good among those who have been furloughed, put on enforced leave or given reduced hours. 13% of consumers in this group were much more likely to report having defaulted on at least one payment in the past month, compared to just 4% of those still working as usual. 7% of this furloughed group had defaulted on a bill and 6% had defaulted on a loan or credit card payment. Of those renting or holding a mortgage, 5% had defaulted.
Similarly, the majority (60%) of those in the furloughed groups reported having made one or more of a number of adjustments to cover essential spending in the past month. This compares to 42% among those working as usual. Adjustments indicating some level of financial pressure include having cut back, borrowed money, used savings or taken out a loan to cover essential spending in the last month. The proportion was higher among the furloughed compared to the working as usual group for each adjustment.
The differences presented here highlight the uneven impact of this crisis on different groups of consumers even despite extensive government support for incomes. From next month, employers will have to begin contributing towards the Coronavirus Job Retention Scheme and it is due to end completely in October. The worry is that the disparities between households will widen further as this happens.
This month we also explored consumer spending and saving amid the pandemic. Read more here.
The fieldwork was conducted by Populus on behalf of Which between 17th and 19th July 2020. A nationally representative sample of 2,129 consumers was surveyed.
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