Consumer confidence and financial wellbeing in October 2020
Consumer confidence weakened further this month. All three of Which?’s measures of confidence decreased slightly, wiping out any improvements during the summer months.
Consumer confidence in the future of the UK economy continued its downward trend and is lower than at any point except during the height of the coronavirus crisis in March and April.
More people reported having defaulted on a payment. The reported default rate increased from 3.8% in September to 5.7% in October, highlighting the need for continued support for consumers at this time.
Consumer confidence shows signs of a decline
Which?’s Consumer Insight survey showed a continued decline in consumers’ economic confidence in October. Net confidence in the UK economy over the next 12 months dropped to -66, a major decline from just two months ago when it was at -38. Confidence had been improving up until August, but is now moving closer to the unprecedented low recorded in April (-79).
This downturn in economic confidence no doubt reflects the increase in virus cases and escalating restrictions put in place to control the spread. More than half of England is now under additional restrictions following the introduction of the three-tier system of locally targeted measures aimed at reducing virus spread. Additional measures include a ban on people from different households meeting indoors (including pubs and restaurants), which has major implications for the hospitality industry.
Individuals’ confidence in their own household financial situation has consistently fared better than confidence in the wider economy. Confidence in current household finances has tended to be above its pre-covid trend level, which might reflect the success of government support measures and that many households were able to save more during the national lockdown, while outlook on future household finances largely recovered following its initial downturn in March.
However, both measures ticked down in October and, though the change is slight, it remains to be seen whether this will continue into a more significant downward trend as support for workers affected by coronavirus rules and forbearance measures for those struggling to repay debts are both set to become less generous.
Consumer confidence in current household finances varies significantly by age in our sample, with a u-shaped effect in which older and younger adults are more positive than those in mid-adulthood. This is perhaps surprising given that the oldest and youngest workers were more likely to have their employment affected by the crisis, but it has also been shown that those aged 35-54 were most likely to have increased their use of consumer debt during lockdown. It may be that since people in this age range are more likely to have dependents they are least able to reduce their expenditure in response to any loss in income.
In contrast, confidence in future household finances and the future of the UK economy both decline with age. Despite the government’s continued commitment to the state pension triple lock, those aged over 65 are least optimistic about the future. Alongside the 55-64 age group, they had the lowest confidence in their future household situation (-30) and the future of the economy (-76).
Financial difficulty levels highlight the need for continued support
While we have previously found evidence of higher levels of financial difficulty only among those who were furloughed, put on enforced leave or given reduced hours due to the coronavirus crisis, the October data shows signs of what may be a wider increase in financial difficulty.
Most notably, there was an increase in the proportion of people who said they had defaulted on at least one housing, credit card, loan or bill payment. This default rate increased from 3.8% in September to 5.8% in October, which is the highest rate since the crisis began.
The increased default rates were largely as a results of increased defaulting on a credit card or loan payment, the incidence of which increased from 1% of the sample in September to 3% in October.
At the same time, there was little change in the proportion of people who reported an adjustment to their payment, such as a payment holiday or payment plan. The proportion who made some other kind of adjustment to a payment was decreasing through to August, but was little changed between September and October.
There were also more people reported less severe forms of financial difficulty this month:
The proportion of people who have made an adjustment to cover essential spending, for example borrowing, cutting back or taking money from savings, increased slightly from 41% in September to 44% in October.
The proportion who reported having no money left over after essential spending increased from 25% in September to 30% in October.
Although changes in these measures of financial difficulty are small, they come at a critical time as FCA guidance for how firms should treat consumers experiencing financial distress changes at the end of this month. After 31st October, businesses may still give payment holidays, but only after consideration of customers’ individual circumstances, and taking an agreed holiday will be marked on credit records as a missed payment.
The relative stability of our measures of financial distress during the pandemic demonstrates the success of the support so far provided to consumers, but the financial squeeze might be starting in earnest for more households, just as we enter a winter of increased restrictions across many areas of the UK.
The fieldwork was conducted by Populus on behalf of Which? between 16th and 18th October 2020. A sample of 2,092 consumers was surveyed and weighted to be nationally representative according to a range of demographic characteristics.
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