While Consumer Sentiments Slightly Improve, They Continue To Remain Cautious

Summary

• Consumer Confidence Index has increased by four points over the past two weeks, but is still negative
• Fears are fueled by poor economic performance and a weak job outlook
• Savings on the rise during lockdown
• Retail footfalls expected to drop by 77 percent

The consumer confidence has moved up, showing a slight recovery in June, even though it is much lower than its level at the beginning of the year. This is revealed by the latest results of the GfK Consumer Confidence Index (CCI) survey, the longest running and reputed barometer to get UK customer insights.

The index captures consumer opinions about the economy, state of their finances and their spending pattern. It is conducted every two weeks and so released twice each month. A positive reading of the index reflects an optimistic opinion of the consumers while a negative one means that they are pessimistic.

The GfK CCI has moved up to -30 on June 19, 2020 from a lower figure of -36, which was recorded two weeks back on June 9, 2020, as per the latest survey findings. As one can easily notice, the reading is still trending in the negative zone, implying that the consumers are still very bearish with respect to their expenses.

It was on 28 February, when this year’s highest CCI level was achieved, which was still negative, but much closer to zero, at -7. A reading of zero implies that consumers remain neutral and are expected to continue with their usual spending behaviour.

Once the corona infections began to spread fast in the country, the GfK consumer confidence dived sharply to -34 during April this year. The year 2016 was the last time when consumers were seen to be bullish about the UK economy, and the index displayed a positive value then.

After that it has moved to negative rates, but it was only this year that its level stooped below -30, which is considered very high and a cause for concern.

With poor economic performance and a weak employment scenario, consumers are opting to save more money for an uncertain future.

Poor economic performance

The UK economy is shrinking at unprecedented rates, and is unlikely to recover from the losses in the next 2 to 3 years. British economy shrunk by a high rate of 20 percent in April this year, according to the latest statistics released by the Office of National Statistics (ONS). The quarterly projections for the year are also negative.

As a whole, the country’s GDP is projected to fall by 8 percent during the year 2020, according to EY Item Club projections, posing challenging times for businesses as well consumers. The Club also expects investments to fall by 14 percent for the year.

The non-essential retail shops have started to open up, but await decent footfalls, as consumers are cautious about their health and are taking all precautions not to catch the widespread corona infection.

Weak employment scenario

Jobless claims in the country have risen to 3 million till June 16, 2020. This is because the coronavirus led lockdown has forced many companies to shut down operations as the economic growth is stumbling and they struggle to survive.

Many sectors like hospitality, aviation and retail are still announcing job cuts. Joe Staton, Director, GfK says that with more job losses expected in the near future, it is questionable whether this slight upside observed in the CCI June levels will be continuing in the fortnights to come.

Government has been trying to handhold firms sail through these tough times, through its furlough scheme, which has protected up to 9.1 million jobs till now. The fate of these furloughed employees is hanging in the air with Government gradually withdrawing its financial support to the scheme, beginning this August. Employers are advised to pitch in from August, but it is yet to be seen whether they are able to do that, given that their revenues are falling. Government plans to end its furlough scheme in October.

This gloomy situation has left the consumers wary of their job scenario in the immediate future itself.

Savings on the rise

Disposable incomes are falling, not only as the salaries drop for many people, but also because UK citizens want to save more for the rainy day, so to say. Plum, a mobile app that manages money for over 1 million UK uses, said that consumer savings on its platform have multiplied by almost 5 times since the beginning of 2020. People are using the lockdown to spend only on essential goods and services, and save the rest for later. Alcohol and cigarette expenses are also falling for some.

Another survey conducted by the Raisin UK, a leading national savings platform, has projected that around £1.8 billion of savings were made throughout lockdown by the Britons. People could not spend anything on recreational activities, socializing and dining out due to the lockdown in place. They also saved on commuting by working from home. The survey found out that an average Briton could save up to £700 every month, since the lockdown restrictions came into force. With people more cautious about money matters now than ever before, this trend is likely to continue in the near future, as well.

Lower retail footfall expected

According to latest estimates by the British Retail Consortium, total footfall in shops across Britain is expected to drop by 77 percent during the year 2020.

Helen Dickinson, CEO, British Retail Consortium has remarked that while retailers were facing hard times since the past three months, but they are not expected to get any immediate relief as the shops start to reopen. Social distancing norms and low consumer confidence will ensure that there are no high footfalls overnight, despite competitive deals in place at the shopping malls.

Consumer habits are changing, with people taking a longer time than before to buy items, be it a car, home or furniture. Luxury buys are obviously last on the list. It might look tempting for few to increase their expenses as the lockdown is being lifted, but most of the consumers are still expected to be cautious, as the ongoing corona pandemic is indicating that the financial challenges are still not over.