Consumer negativity on economic outlook falls

12 June 2023 Consultancy.uk 4 min. read

As the global economic picture remains clouded by uncertainty, consumer sentiment remains notably pessimistic about future prospects. However, a new survey suggests that the tide may slowly be turning in that regard, with a narrow rise in consumer confidence since the start of the year.

Having stood at a four-decade high since early 2022, inflation rates may finally have peaked in many economies across Europe. In April 2023, the UK's annual inflation rate fell beneath double-digits for the first time in a year – though 8.7% is still contextually very high, and also included massive spikes in household essentials and food.

Even so, new research from strategic consultancy CIL Management Consultants suggests that consumers are happy to take a ‘win’ wherever they can get it.

Consumer negativity on economic outlook falls

In the firm’s most recent tasseographical poll of an undisclosed number of UK shoppers, CIL found that in May 2023, a mere 39% of consumers thought their financial position would change in a ‘negative’ manner over the coming 12 months – compared with around 30% who expected ‘positive’ change.

Positive sentiment in this regard rose by 2% on the figures CIL found in February 2023, while those suggesting things could get worse sank by more than 4%. February also saw negative sentiment shrink, leading CIL to conclude that “after nearly two years of declining confidence,” its Spend Index had experienced “two consecutive quarters of growth, indicating a growing sense of stability.”

Before the UK’s economists roll out the red carpet, however, it is worth bearing in mind that the largest portion of consumer sentiment was simply in the ‘no change’ camp instead. In boom times, that might be regarded as a positive sentiment – but following a year in which most households have been faced with unprecedented bills for utilities, while salaries failed to keep pace with inflation, and food prices boomed by as much as 16.7% according to the ONS, the idea that ‘things won’t get any worse’ is not necessarily a ringing endorsement of economic health.

Furthering that point, a majority of 56% told CIL that they were still planning to postpone big ticket purchases in the coming year. A further 28% were ‘neutral’ on the matter, suggesting a wait-and-see attitude that may depend on more positive news than simply ‘record price hikes now slightly slower’ to inspire spending.

With the drastic drop in consumer spending having pushed the UK economy to the brink of recession in 2022, the fact most consumers are not planning on loosening their purse strings in the immediate future does not seem to speak of a coming boom in spending.

Consumer negativity on economic outlook falls

Furthering this, many consumers may expect things to get worse again, before they get better. CIL found that a 69% majority agreed that they would save money when shopping in the next 12 months – in contrast to around 6% who disagreed with the need to find more savings. There will be opportunities for some retailers in this environment, however.

CIL found that the data suggests there will be a continued polarisation in consumer behaviour. Value-focused grocers, lower-priced restaurants and affordable clothing brands stand to benefit from consumers’ inclination to trade down, especially as the summer holidays begin. Meanwhile, businesses with a premium or luxury but non-big-ticket proposition should remain relatively well-protected, as they cater to the few consumers who are unaffected by inflation in the first place.

At the same time, a more maintainable form of consumption may be born of this – with the researchers finding consumers are increasingly less willing to depend on borrowing for their needs.

The researchers suggested, “It is encouraging to note that only a relatively small proportion of consumers intend to depend on borrowing money to sustain their spending, indicating a positive departure from historical patterns and the potential financial instability associated with excessive borrowing. Fortunately, many consumers, particularly those in lower-income groups, still have savings to fall back on.”