Consumer confidence and finances in May 2020
Overall, consumers remain deeply pessimistic about the current state of the UK economy with the tracker recording its worst-ever measure of confidence. This is not surprising given that a large part of the economy is in lockdown.
However, consumers continue to have confidence in the current state of their household finances
Outlook on the future of both the UK economy and respondents’ own household finances is still deeply negative, but it has improved.
Consumer confidence remains lower than usual, but it did recover in May...
The May wave of the Which? Consumer Insight Tracker survey found that UK consumers are inevitably still very concerned about the economic situation, but they are feeling more optimistic than in the past two months.
We ask respondents four questions on how confident they feel about the economic situation. These are two questions on their current household financial situation and the current state of the UK economy, and two questions on the future of these over the next twelve months.
The verdict on the current state of the UK economy is bleak. 74% of respondents said it is in a fairly poor or very poor state and only 6% said it is good, giving a net score of -68.
However, consumer confidence in the current state of their household finances is strong. This recovered last month to pre-coronavirus levels, but it rose again in May. At +35 points, this measure of confidence is higher than it has been since 2016. As we explain below, this may relate to temporary reductions in household expenditure.
Sentiment towards the future edged upwards in May. Outlook on the future of the UK economy is now at -52 points compared to -79 in April, while outlook on the future of respondent’s own household finances is also more positive than it has been since the start of the coronavirus crisis, at -18 compared to -32 in April and -43 in March.
This is still strongly negative and it is clear that consumers continue to lack confidence in the future economic situation. However, the significant improvement compared to the past two months suggests that more consumers are optimistic that the economy will have a good recovery from the coronavirus crisis in the next 12 months.
...and more consumers are feeling comfortable financially
The uptick in our measures of consumer confidence are reflected elsewhere in our survey. There was a notable reduction in the proportion of households cutting back on essential spending (23% in May compared to 29% in April). Essential spending was defined as including groceries, housing costs, utility bills, school supplies and medicines.
There has also been a decrease in the number of consumers who said they are worried about prices of essential services. Compared to February, when this data was last collected, a slightly smaller proportion of people said they were worried about energy, housing and food costs and the percentage of people worried about fuel prices dropped substantially from 58% to 33%. The latter no doubt reflects both falling fuel prices and reduced demand as a result of the restrictions put on travel.
In addition to these financial factors, there has not been a drop in general wellbeing as might have been expected in such an unsettling time. 6 in 10 were satisfied with their life overall in May, the same figure as in February.
Furloughed workers are less confident than other workers and the retired
The survey shows that confidence is returning for most groups of consumers, regardless of whether they are in or out of employment, or retired.
Confidence in current household finances for the temporarily unemployed or sick moved from a negative (more people pessimistic than optimistic) to a positive score, while there were also large improvements among the retired and those working part-time.
The only group that did not report a statistically significant increase in confidence in the current state of their household finances was the one containing those who have been furloughed, put on enforced leave or given reduced hours. Their confidence measure is only +16, considerably lower than the average across all consumers.
The Coronavirus Job Retention Scheme has been used for 8.4 million workers and this group comprise 18% of our survey sample. Given the number of consumers affected by this, the confidence of this group will matter greatly for the overall economy. The Chancellor announced that the scheme would be extended to October on May 12th, which was just the day before the May wave of the Consumer Insight Tracker went into the field. While this will be welcome to these workers, they will undoubtedly remain concerned about the long term prospects for their jobs and our data suggests the Chancellor’s announcement was not sufficient to boost confidence in this group.
Confidence differs greatly across housing tenure status. Among those who own their house outright, confidence in current household finances was +62, compared to -4 among social renting from the council.
This is consistent with the differing prevalence of financial difficulty in these groups. 44% of our sample reported having taken some action indicative of financial difficulty in the last month. Such actions include having made an adjustment such as cutting back on essential spending, borrowing money or taking out credit to cover essential spending, having defaulted on a payment or having arranged a payment holiday or payment plan to cover a housing, bill or loan payment. This figure rises to over half (56%) among council and private renters, but falls to a quarter among those who own their house outright.
What might be behind increasing confidence?
The recovery in consumer confidence is perhaps surprising given that we are still in the midst of such a major crisis and expert commentators are predicting a slow economic recovery. However, it does accord with other evidence that wellbeing on the whole has improved in the weeks since the initial shock of the lockdown in March, and that life satisfaction has increased in recent weeks as fears over issues such as access to food have decreased dramatically.
In our case, it seems likely that the timing of our May survey, coming three days after the Prime Minister announced some easing of lockdown measures in England, may have captured a growing sense of optimism among consumers after 7 weeks of lockdown.
The three-year high in people’s outlook on their current financial household situation is striking, but may well reflect that due to travel and leisure activities severely restricted many households have fewer outgoings and many households are in fact increasing the levels of their savings. The reduction in worry about prices (especially fuel prices) and increased worry about interest rates on savings would support this.
Whether this recovery in confidence continues remains to be seen. High-profile announcements of job losses, such as Rolls Royce’s on May 20th that 9,000 jobs are to be cut, may cut through to consumers and will inevitably impact confidence. More generally, it seems likely that consumer confidence will fluctuate as in the coming months as consumers react to news.
Published on 28.05.20
This data was collected as part of the May wave of Which?’s Consumer Insight tracker survey. The fieldwork was conducted by Populus on behalf of Which between 13th and 15th May 2020. A nationally representative sample of 2,095 consumers was surveyed.
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