Deloitte reveals extent of belt tightening

A NEW consumer survey from accountancy firm Deloitte will make depressing reading for Midlands businesses operating in areas linked to discretionary spending.

West Midlands consumers are making significant cutbacks in their discretionary spending as unemployment, inflation and depressed wage growth take a bite out of disposable income, according to Deloitte’s Consumer Tracker, a monitor of consumer confidence and spending habits.

Jane Whitlock, consumer business partner at Deloitte Birmingham, said: “A fierce squeeze on disposable income and high levels of macroeconomic volatility pushed the consumer sector back into recession in 2011. The UK has generated far higher levels of inflation over the last year than any other industrialised nation and this has hit consumer spending power.

“Inflation should fall sharply in 2012, bringing some relief to hard pressed consumers.  But with unemployment heading up, credit in short supply and the economy in a fragile state we would expect household spending to increase only modestly in 2012.”

In response, consumers are cutting back across all discretionary categories.  Some 41% of West Midlands consumers are spending less on entertainment (cinema, theatre, concerts), whilst 35% are spending less on clothing and footwear, 32% on furniture and homeware, and 24% are cutting back on holidays.

However, Deloitte’s research indicates reductions in total UK expenditure in categories such as clothing is coming about through consumers buying cheaper items rather than buying fewer items.  Initial search figures indicate that volumes are flat rather than falling in the fourth quarter of the year.

Whitlock added: “Consumers are adapting their behaviour to the current economic environment by trading down, staying in and postponing the purchase of big-ticket items. However, whilst this is negative overall, it still presents opportunities to certain companies such as those providing subscription television, DVD rentals or takeaway food. 

“Consumers are telling us they are deliberately making fewer impulse or spontaneous purchases.  People are being forced to prioritise their spending habits.”