Consumer confidence and finances in June 2020
- Having recovered somewhat in May, consumer confidence in the current and future states of their household finances remained stable in June, but outlook on the future of the UK economy dropped slightly and remains deeply pessimistic.
- The rates at which consumers have defaulted on a housing, loan or bill payment have remained low, but vary by employment status and many consumers have made use of payment holidays to manage their expenditure. 17% of those who have been furloughed, given reduced hours or put on enforced leave as a result of the coronavirus reported arranging some kind of payment holiday.
- Workers whose incomes have been reduced by the coronavirus crisis were more likely to report cutting back on essentials or taking money from savings to cover essential spending than those whose incomes have not been affected. However, they are not more likely to be paying for essential spending using credit.
A stalling recovery in consumer confidence
After a recovery in May, consumer confidence was broadly stable in June. Outlook on current and future household finances did not change significantly, whilst outlook on the future of the UK economy dipped slightly, from -52 points in May to -59 in June, with the vast majority still believing that things will worsen over the next 12 months. Taken together, this indicates that household finances remain healthy on average, but that there is deep pessimism about the future health of the economy.
The survey was conducted during the weekend before non-essential shops reopened, but the staged easing of lockdown measures has not yet returned confidence to consumers.
Income support measures and payment holidays have kept default rates down
Unsurprisingly, there is variation in the health of household finances across consumers. The group most likely to be exhibiting characteristics of severe financial difficulty are the sick and the temporarily unemployed, who are out of work but seeking it. 11% of this group reported having defaulted on a housing, loan or bill payment in the last month.
Default rates among other consumers have undoubtedly been kept lower than they might have been by government support for incomes. The Coronavirus Job Retention Scheme, which offers the opportunity to furlough staff, has helped support the incomes of 8.7 million people during the coronavirus crisis. The default rate was 6% among those who have been furloughed, given reduced hours or put on enforced leave as a result of the coronavirus (18% of our survey sample). By contrast, only 3% of full time workers and 4% of part-time workers reported having defaulted over the last month.
Payment holidays have also been widely accessed. According to UK Finance, 1.9 million mortgage payment deferrals have been offered to customers impacted by Covid-19 in the three months since the support was launched. For some consumers this will have been a precautionary measure, but it will have also kept default rates down.
Across all respondents, 9% had arranged a payment holiday or payment plan for at least one bill, housing, credit card or loan payment. This rose to a fifth (21%) among the self employed, and 17% in the furloughed group.
Furloughed workers more likely to be cutting back
Although only a small proportion reported financial difficulty so severe that they had been unable to make a payment, a much larger proportion reported having made other adjustments indicative of some financial pressure.
Just over two-fifths (43%) of respondents reported having made one or more of a number of adjustments to cover the month’s essential spending. These adjustments include cutting back on essential spending, taking money from savings or borrowing to cover essential spending, or taking out a new credit card for essential spending. This is similar to the proportion reported in May (41%), but slightly lower than before the crisis as it was 49% in February. This no doubt reflects that expenditure for many households has fallen as a consequence of lockdown.
Breaking this down by employment status, those whose income has not been affected are now less likely to be making an adjustment to cover essential spending than before the crisis. 45% of those still working as normal made such an adjustment in June.
The rate was much higher among those who had been furloughed, put on enforced leave or given reduced hours. 60% of this group made adjustments to cover the month’s spending. This is similar to the proportion among the sick or temporarily unemployed, which was 61%.
Cutting back on essential spending was the most common adjustment, with 38% of the furloughed group having done this. This compares to 25% in the sample as a whole and 24% among those still working as normal. By contrast, the furloughed group were not significantly more likely to report having taken out a loan, a new credit card or used an overdraft facility. This indicates that despite needing to make adjustments to cover their essential spending, we find no evidence that they are taking on more unsecured debt to do so.
The increased level of financial difficulty for those whose employment had been impacted by coronavirus highlights the financial burden placed on many consumers as a result of the crisis. Over the summer, the job retention scheme will wind down, with employers required to contribute more to paying furloughed employees, before it ends in October. Whilst many furloughed workers are likely to be back at work by then, some will not, and the winding down of this scheme will remove financial support from a group of consumers who are already experiencing comparatively high levels of financial difficulty.
This data was collected as part of the June wave of Which?’s Consumer Insight tracker survey. The fieldwork was conducted by Populus on behalf of Which between 12th and 14th June 2020. A nationally representative sample of 2,088 consumers was surveyed.
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