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Rising bills push consumers to cut back on spending

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Consumer confidence in the UK has plunged to record lows as households reigned in spending amid economic volatility and soaring inflation.

The latest consumer tracker from Deloitte this morning showed confidence fell for the fifth quarter in a row, moving down one percentage point to –20%, twice as low as a year ago and the lowest level since the firm started the tracker in 2011.

Spending power also remained significantly strained, as consumer sentiment around levels of debt also reached the lowest levels on record at –17%, two percentage points below the second quarter of 2022.

Consumers cut back on essential and non-essential spending for the second successive quarter in Q3, decreasing by two and one percentage points respectively.

Almost a third (30%) of consumers said they are now spending less, up from 21% at the start of the year.

“Consumers are making conscious efforts to cut back on all spending,” said Céline Fenech, consumer insight lead at Deloitte. “With rising food prices and personal finances coming under further pressure from higher energy bills, we are seeing a contraction in consumer demand.”

Consumers highlighted several actions they are taking to combat rising costs. This includes 57% who are reducing home energy consumption, 40% who are spending less on clothes and shoes, and 22% of respondents who have ended, or intend to end, an entertainment subscription.

Two in five (39%) consumers said they are spending less on going out and leisure activities as a way to save money. As a result, net spend across leisure fell quarter on quarter by two percentage points, to –12%, in Q3 as consumers ate out less and limited their visits to coffee shops, pubs and bars, and to culture and entertainment venues. One exception, attending sports events, was the only area of leisure to see a quarter-on-quarter improvement.

Consumers indicated they will spend even less on leisure in Q4 2022, with intended net spend down across every leisure category, at a time when 59% of consumers believe they will have less money to spend for the Christmas period.

Simon Oaten, partner for hospitality and leisure at Deloitte, added: “For the hospitality industry, a reduction in typical festivities or diversion of these to home will almost certainly take the shine off the ‘golden quarter’. Businesses may want to adapt to hosting smaller groups or catering, once again, for more take-home entertainment.”

Consumer sentiment towards the state of the UK economy remains low, at –80%, and at similar levels last seen in Q1 2020 at the start of the UK’s Covid outbreak. Coupled with declining sentiment around job opportunities and career progression, down two percentage points, and sentiment on job security remaining flat quarter-on-quarter, consumers are reflecting concerns around job prospects by adopting more recessionary spending behaviours.

Ian Stewart, chief economist at Deloitte, said: “High inflation has driven consumer sentiment sharply lower this year despite a red hot labour market. Now consumers are starting to worry about the outlook for jobs. With inflation elevated, interest rates on the rise and the labour market starting to cool, the squeeze on spending is likely to intensify.”

Morning update

The FTSE 100 has slipped 0.4% to 6,940.92 pts but sterling has moved higher against the dollar as Boris Johnson decided against running for leadership of the Tory party, leaving Rishi Sunak as firm favourite to become the new prime minister.

Early risers in food and drink include Bakkavor, up 5.5% to 96p, Marston’s, up 4.9% to 35.3p, and Nichols, up 4.7% to 1,151.5p.

Tech stocks are under pressure this morning, with THG down 6.4% to 46p, Naked Wines down 3.6% to 121p, Deliveroo down 3.5% to 81.9p, Just Eat Takeaway down 3.2% to 1,297.4p, and Ocado down 2.3% to 473.4p.

This week in the City

Half-term holidays will have some impact on news flow this week but there is still plenty going on as earnings season continues.

Embattled THG is set to update markets with Q3 figures tomorrow, while Coca-Cola and Kimberly-Clark also issue quarterly results in the US.

Reckitt Benckiser and Heineken will report Q3 results on Wednesday, alongside full-year results from Virgin Wines, with Kraft Heinz to update US markets. The BRC will also publish its monthly shop price index.

Unilever will give an insight into how well its brands are standing up to the consumer push for own label on Thursday in its Q3 results, while Carlsberg and AB InBev also issue updates. In the US, Amazon and McDonald’s report quarterly results.

On Friday, in Asia, Budweiser Asia-Pacific reports, while in the US, Colgate-Palmolive releases quarterly numbers.