Consumers shelve Brexit fears as confidence hits five-year high

UK consumers have shrugged off post-referendum pessimism, with confidence rising to a five-year high in the third quarter of 2016.

According to the latest Consumer Tracker from Deloitte, Yorkshire consumer confidence has increased since the beginning of the year by four percentage points.

The quarterly survey of 3,000 UK consumers has seen confidence rise by three percentage points from the previous quarter. This was the largest quarterly increase in confidence in 18 months, since Q4 2014.

Five out of the six measures which make up the confidence index have risen since the second quarter, with job security, job opportunities and career progression seeing particularly strong gains in consumer optimism. Confidence in job security rose by six percentage points compared to the previous quarter, after having fallen for the previous three consecutive quarters. In Yorkshire there has been an increase in confidence in job security since last quarter with a three-point percentage rise.

However, London’s confidence is now lower than the rest of the UK. Consumer sentiment in the capital fell by three percentage points in Q3, and is now 9% lower than it was at the same period last year. Brexit uncertainty is a likely reason for this disparity, particularly due to the fact that voting patterns in the referendum showed that the majority of Londoners were ‘Remainers’.

Ian Stewart, chief economist at Deloitte, said: “In contrast to the business community, with Chief Financial Officers on the defensive following the EU Referendum, UK consumers have put Brexit fears to one side.

“Consumers are benefiting from favourable tailwinds, including low inflation, low unemployment and relatively high disposable incomes.

“In an inversion of the usual relationship London’s consumers are less upbeat than the rest of the UK. The Brexit vote may be weighing on a region in which 60% of the population voted to Remain and where reliance on financial services, migration and capital flows are especially strong.”

The Q3 Consumer Tracker also showed that consumer spending is continuing to shift from everyday essential items to more discretionary, non-essential categories. Spending on essentials, such as clothes and groceries, was flat for the second consecutive quarter. By contrast, net spending on discretionary categories rose by one percentage point.

Andrew Coticelli, partner and consumer business lead at Deloitte in Yorkshire, commented: “Consumer spending remains healthy, and has probably been boosted by the good weather and the country’s sporting success over the summer.

“The gap between leisure and retail spending is narrowing as consumers continue to prioritise spending on experiences, such as holidays and days out, rather than goods and services.

“With the consumer-focused economic fundamentals still showing few signs, if any, of a slowdown since the end of June, we expect retail sales growth to continue into the fourth quarter. Consumer spending power may be challenged in 2017 and beyond, particularly when faced by the prospects of higher inflation and the start of the formal Brexit process.”