Inflation must fall in order for consumers to spend more, Deloitte survey says

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The FINANCIAL — Inflation must fall further in order for consumers to spend more.


That's the message from business advisory firm Deloitte which today published its latest survey on consumer spending.

Deloitte's Consumer Tracker showed that fewer people were pessimistic about job security (down to 18% from 24%) and they were also less worried about managing personal debt (down 22% from 25%). But 51% were still downbeat about their household's disposable income, a slight increase on 49% in the last quarter.

But trading down, which has been prevalent since the start of the economic crisis in 2008, shows signs of easing: of those consumers who reported spending less this quarter, 27% did so through buying cheaper products, compared with 32% in the last quarter and 40% three months prior to that.

Ian Stewart, chief economist at Deloitte, said: "Consumers remain cautious, albeit slightly less so than at the end of last year. There are some, very tentative, signs that the slump in consumer sentiment may be bottoming out. Consumers feel slightly more comfortable with their personal balance sheet but there has been a huge shift in the British consumer's attitude to debt from being very permissive to out of fashion.

"For consumers to spend more, disposable incomes need to improve. Wages are unlikely to see much growth this year, so the big hope is that sharply lower inflation will support consumer spending power. If inflation drops in the second half of this year, the UK consumer should see some modest growth. Yet the UK consumer remains vulnerable to events, particularly an intensification of the euro crisis or further rises in oil and energy prices."

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According to Caterer and Hotelkeeper, the survey also showed that 37% of consumers spent less on going out (cinema, theatre, concerts) over the last quarter, whilst the same proportion were cutting back on clothing and footwear. But 51% were spending more on gas, water and electricity while 44% spent more on food shopping and transport costs.

Nigel Wixcey, UK head of consumer business at Deloitte, said: "Whilst the first signs of recovery are starting to show, the GDP figures published last week will provide a psychological blow to both consumer and business confidence. To a degree, consumers and businesses are behaving similarly by protecting and strengthening their reserves and waiting for a more certain recovery before splashing the cash.

"Despite all this uncertainty, the consumer economy is looking a little brighter this year than last. This may not be saying much, but we are at least moving in the right direction."



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