Despite the roadmap out of lockdown leading to a boom in confidence in Q2 2021, consumer data shows that confidence has already started to fall, and the UK public are feeling increasingly cautious.
These negative trends are a stark difference to the gains made in Q2 2021. The roadmap out of lockdown released by the UK government at the end of February 2021 was a beacon of light at the end of what had been a long, dark tunnel through the pandemic.
Our latest Q3 2021 Consumer Compass shows that overall consumer confidence has fallen by 7 points back to the neutral line (100) since last quarter. Though this is still an improvement on the lows experienced last year – with confidence at the beginning of the pandemic plummeting to 82 – it still suggests that pessimism may be on the rise once more.
There are a variety of areas where perceptions are worsening, and this has likely culminated in the overall drop in confidence experienced this quarter. Consumers are less certain about their own financial situations this wave, with net confidence in personal finances down by 14% since Q2, and net disposable income down 9%. There is also increasing distrust in the wider economy, with net confidence in the UK’s overall economic situation down by 23%.
The proportion of the public who are ‘suffering’ – i.e., are exceedingly worried about the future and have cut all expenditure – has continued to fall since the high levels witnessed at the start of the pandemic. However, falls in confidence this wave may explain why the proportion who are cautious about their spending/saving behaviour has increased to over 2 in 5 (42%) in Q3 2021.
These negative trends are a stark difference to the gains made in Q2 2021. The roadmap out of lockdown released by the UK government at the end of February 2021 was a beacon of light at the end of what had been a long, dark tunnel through the pandemic. As businesses got back on their feet and consumers were once again allowed out to eat, drink, shop and socialise, with the promise of soon being able to do so without any restrictions, widespread optimism was clearly reflected in the Consumer Confidence Index (CCI) score for Q2 2021. This was the highest score seen since Q4 2015 and was in net positive for the first time in over a decade.
It is important to note that confidence does differ by age group. Q2’s optimism has endured amongst Gen Z – those aged 18-24. This age group have continued to see overall confidence gains, as well as being increasingly optimistic about their own finances when compared to last quarter. Their continued positivism may be attributed to the fact that Universities and nightlife venues are now largely open as usual, and the re-opening of the hospitality industry brought with it the offer of part-time employment opportunities. This begs the question, why was the boom in confidence amongst those aged 25 and over so short lived?
The answer is different for different generations. Declines in overall confidence amongst Millennials and Gen X, those aged 25-54, have seemingly been driven by worsening perceptions of their own personal finances. Net confidence in their own financial situation has fallen by 17% since last quarter. Personal finance declines are closely tied to employment, and this age group have seen a 6% decline in net perceptions of their job situation this quarter, whereas those aged 55+ have seen gains of 2%.
Concern amongst older consumers has instead been fuelled by increasing distrust in the UK economy at large. Net confidence in the UK’s economic situation amongst those aged 55 and over has fallen by a staggering 40% since Q2 2021, which is almost double the overall decline of 23%. It is likely that uncertainty is now premised on emerging issues such as Brexit-induced supply problems as opposed to COVID-19.
Will this caution continue to rise – prompting many to tighten the purse strings and culminating in muted spending over the upcoming festive period? Or will confidence now stabilise as people adjust to the new-normal, and will consumers get back into the swing of in-store Christmas purchases? There are more factors than purely COVID at play this year – so time will tell.
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