The Sudden Downfall in the UK Consumer Confidence Indicates Hard Time to Follow

Research and analysis agency, Growth for Knowledge (GfK), on 6^th April 2020, announced the latest figures for the Consumer Confidence in the United Kingdom for the mid and end March period based on a survey conducted just a few days earlier. The data reveals that the Consumer Confidence Index has fallen sharply by 25 points between March's first two and last two weeks – dropping to -34 from -9. All the indicators which make up the Index score such as the personal financial situation over the last 12 months and over the next 12 months, General Economic situation over the last 12 months and over the next 12 months, as well as the Major Purchase Index have dropped. The savings index, which the report also includes but is not included in the overall consumer confidence index also fell considerably by 6 points.

(Source: Growth for Knowledge interim COVID-19 flash report)

This was the biggest fall since the records began to be published in the year 1974, as steps taken to curtail the transmission of coronavirus impacted on both the economic aspirations of households in the country as well as on the purchasing decisions being taken by the families, as per the report published by GfK showed.

This has come just after an increase in Consumer Confidence was witnessed in February following the successful exit from the European Union, just prior to the coronavirus outbreak in Europe. In the month of February 2020, the consumer confidence was reported at -7, highest in the last 11 years since 2009 after the 2008 Mortgage and Financial Crisis, in which Britain was one of the worst hit countries. This was also reflected in a IHS Markit UK Household Finance Index which was up at 47.6 points from 44.6 points in January 2020. After these two surveys, it was anticipated that the consumer spending would likely increase, and the United Kingdom economy would be on a path of recovery after a long period of uncertainty, since the Brexit referendum.

The indicator for past personal financial situation declined by 6 points to -4 for the period at the end of March, while the future personal financial condition of the next 12 months index plummeted by approximately 20 points to -17. The indexes for the past and future overall economic situation decreased by 17 points and 29 points respectively, and the survey also revealed a sharp fall in the major purchasing index by 50 points to -52. Amid record supermarket sales and recent peaks for freezer, TV and home office equipment purchases, as people remained confined at their homes working from there for a long time now, the purchasing index declined by 50 points – a clear picture in the short to medium term for certain parts of the retail industry.

The GfK report also suggested that there was a potential variance of +/- 2 per cent in the results of all the indices which make up for the total Consumer Confidence Index.

Which products did well during the period?

As the lockdown period in the United Kingdom began, other than the sale of essential items, everything else, especially all the casual retail activities and all the industrial operations came to a standstill in the country. People started buying more entertainment products during this period such as the likes of Televisions and Home entertainment systems, DVD, and Blu Ray systems. This was primarily driven by Live TV and Sports TV channels not showing anything as all Sporting events got cancelled. As per another report from Growth for Knowledge, Television sales in the UK surged in the week between15th March 2020 to 21st March, and was reportedly up by 59.5 per cent in terms of the volume of the products, compared to the growth during the same week in the last year, when this increase was reported at 43.3 per cent in terms of volume.

Looking at what people watch, it was also reported that the number of viewers who regularly stream DVDs or Blu-ray disks increased from 5 per cent in the week of March 2nd and increased by approximately 11 per cent the week after that. Similarly, web browsing and 'download to own' (DTO) content jumped from 4 per cent to 9 per cent during the period. Certain other reports have also suggested that the browsing on social media applications and websites have gone up to unprecedented levels and people on an average are spending more weekly time on their phones and laptops, as compared to earlier.

Even though there has been an unchartered jump in the sales of such products, reportedly the average total retail price points this year is at its lowest yet. It means customers are buying simple models for realistic solutions, rather than straggling out on a superior model, which are meant to improve the user experience. Ultimately, people face having their whole family at home every day; probably with the need to keep a distance from each other, and almost certainly with very different opinions on what they want to watch – so they purchase an extra TV set easily to keep in the house.

This also means that even though the volume of sales is increasing, but in monetary terms, there has not been a major change, that might have converted into a revenue increase for the period.

What does this mean for the economy in the times to come?

UK Consumer confidence is now on a historic low and has reached never seen before levels as per the report published by the GfK research group. This is expected to have a vital implication on the economy, especially in the times to come, which may remain turbulent.

• Primarily, this is a key indicator of the economy entering into the recession phase, as even though once this phase is over, businesses are not expected to start operating with their full capacity, as consumers would be hesitant in spending a lot and would try to hold on to all their savings, if any.
• Even though the bank rate is at its lowest levels, people are not even planning to borrow, as without jobs in hands, the repayments of their borrowings and mortgages will become extremely difficult, which might lead to a drop in prices of all kinds of products.
• If and when this phase gets over, the British Economy still has to face the daunting task of the Brexit transition phase, in which, the government’s responsibility is to agree on various trade deals, either with the European Union or with its other allied countries, because, if they fail to do so, the recession could potentially lead the country to a cliff.

The government of the United Kingdom has an extremely difficult task ahead of itself, especially with such low consumer confidence. The primary target of the authorities, if and when this pandemic gets contained, would be to secure the economy and increase the confidence in both the consumers as well as the investors, so that spending continues and the capitals flow keeps coming into the economy.