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Consumers and The Economic Outlook - UK - March 2013

It is now more than five years since Northern Rock collapsed. Since then, the UK economy has experienced once of the steepest recessions on record, and one of the most anaemic recoveries. Consumers’ purchasing power has been eroded by inflation, and wages haven’t been rising enough to compensate.

In some ways, though, the slowdown has been more manageable than previous recessions. Unemployment, while higher than it was in the boom years, never reached the levels that were seen in the early 1980s or 1990s. Low interest rates have helped support mortgage holders, and to hold down the levels of bad debts.

Mintel’s research shows that most consumers have adjusted reasonably well to the new economic realities. Some are struggling, but the majority are at least making ends meet. And confidence has been edging upwards over the last year or so.

In this report, Mintel examines the economic issues that are affecting consumers’ finances, and uses both qualitative and quantitative research to help understand the impact that the slowdown has had on people’s attitudes towards spending, saving and borrowing. We also assess how confident consumers are about their future financial prospects, and how positive they are about the health of the broader economy.

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Table of contents

  1. Introduction

      • Abbreviations
      • Executive Summary

          • The state of the UK economy
            • The economy remains flat…
              • Figure 1: Quarterly change in UK GDP, Q1 2008-Q4 2012
            • …but employment is up, and the income squeeze is easing
              • Figure 2: The income squeeze – increases in the cost of living and the growth in average wages, January 2007-October 2012
            • Consumers’ current financial situation
              • Some sign of financial recovery…
                • Figure 3: Household financial situation index, February 2009-December 2012
              • …but the income squeeze is having an impact on consumers
                • Spending priorities
                  • Safety first…
                    • Figure 4: Financial priorities for 2013, December 2012
                  • …but still room for some luxury spending
                    • Financial expectations
                      • Macroeconomic expectations
                        • Figure 5: Economic expectations, December 2012
                      • Personal financial expectations
                        • Little belief that the feelgood factor will be returning soon
                          • Figure 6: Views on when the feelgood factor will return to the economy, December 2012
                        • What we think
                        • Issues in the Market

                            • How has sentiment changed over the last year?
                              • How well have people adjusted to the new economic environment?
                                • Who has been hardest hit by the slowdown?
                                  • Are people prepared to start spending again?
                                  • Trend Application

                                    • Let the app take the strain
                                      • Getting the most of your luxury spending
                                        • The financial generation gap
                                        • Economic Conditions and Outlook

                                          • Key points
                                            • UK economy walking the thin line between recovery and recession
                                              • Figure 7: Quarterly change in UK GDP, Q1 2008-Q4 2012
                                            • Unemployment drifts downwards…
                                              • Figure 8: Seasonally adjusted unemployment rate, Q1 2008-Q3 2012
                                            • …but youth unemployment remains problematic
                                              • Limited scope for the government to boost spending
                                                • Figure 9: UK government debt as a percentage of GDP, January 2008-October 2012
                                            • Consumer Finances

                                              • Key points
                                                • A decade of stagnating real income
                                                    • Figure 10: Real household income and expenditure per head, Q1 2003-Q3 2012
                                                  • Rising prices put the squeeze on consumer spending
                                                    • Figure 11: The income squeeze – increases in the cost of living and the growth in average wages, January 2007-October 2012
                                                  • Consumers are repairing the damage done by boom-time spending habits
                                                    • Figure 12: Household savings ratio, Q1 2008-Q3 2012
                                                  • The link between housing and savings
                                                    • People are still using their credit cards…
                                                      • Figure 13: Gross new consumer credit (excluding student loans), January 2008-October 2012
                                                    • …but they’re making an effort not to rack up new debts
                                                        • Figure 14: Net new consumer credit (excluding student loans), January 2008-November 2012
                                                      • The mortgage market shows the impact of the credit crisis
                                                          • Figure 15: Secured lending, net and gross, January 2008-November 2012
                                                      • Consumers’ Current Financial Health

                                                        • Key points
                                                          • Some positivity, despite the income squeeze
                                                              • Figure 16: Current financial situation, 2011 and 2012
                                                            • A sign that people have adjusted to austerity?
                                                                • Figure 17: Household financial situation index, February 2008-December 2012
                                                              • US consumer confidence – a sign of things to come?
                                                                  • Figure 18: Current financial situation, US and UK comparison, December 2012
                                                                • The squeezed middle age groups
                                                                    • Figure 19: Current financial situation, by age and presence of children, December 2012
                                                                  • The retired have scope to increase spending
                                                                      • Figure 20: Current financial situation, by working status, socio-economic group and household income, December 2012
                                                                  • Changes in Financial Wellbeing

                                                                    • Key points
                                                                      • The income squeeze feeds through into consumer sentiment…
                                                                        • Figure 21: Change in financial situation over the last year, December 2012
                                                                      • …but financial difficulties need to be seen in context
                                                                        • Changes in responses highlight consumers’ new resilience
                                                                          • Figure 22: Change in financial situation over the past year, July 2011-December 2012
                                                                        • Better times ahead for parents?
                                                                          • Figure 23: Change in financial situation over the last year, by age and presence of children, December 2012
                                                                        • People on the margins have seen finances deteriorate further
                                                                          • Figure 24: Change in financial situation over the last year, by gender, working status and income, December 2012
                                                                      • Financial Priorities

                                                                        • Key points
                                                                          • The first priority is financial stability
                                                                            • Figure 25: Importance of financial priorities, December 2012
                                                                          • Close to the edge
                                                                            • Some signs of a slow turnaround in sentiment
                                                                              • Figure 26: Importance of financial priorities, 2011 and 2012
                                                                            • Is security the ultimate luxury in uncertain economic times?
                                                                                • Figure 27: Key financial priorities, by change in financial situation over the last year, December 2012
                                                                              • Who is prepared to spend a bit of money on themselves?
                                                                                • The recovery may boost saving as much at it increases spending
                                                                                • Challenges Affecting Household Finances

                                                                                  • Key points
                                                                                    • Most people have noticed the impact of rising prices
                                                                                      • Figure 28: Events that have affected household finances, December 2012
                                                                                    • Consumer responses reflect the lack of progress in the broader economy
                                                                                      • Figure 29: Events that have affected household finances, 2011 and 2012
                                                                                    • Those who were already at the margins are most exposed to the slowdown
                                                                                      • Compensating for the price rises
                                                                                      • Discretionary Spending – Past and Planned

                                                                                        • Key points
                                                                                          • Still plenty of scope for discretionary spending…
                                                                                            • Figure 30: Spending intentions, December 2012
                                                                                          • …and trend data show that people can still be tempted into impulse buys
                                                                                            • Figure 31: Spending intentions compared to actual spending patterns, August and December 2012
                                                                                          • Qualitative research hints at the mood of prudence…
                                                                                            • …but there’s still room for luxuries
                                                                                              • Younger people place greater emphasis on experiences
                                                                                                • Discretionary spending shows a desire for indulgence
                                                                                                  • Figure 32: Discretionary spending, December 2012
                                                                                              • Macroeconomic Expectations

                                                                                                • Key points
                                                                                                  • The consumer’s verdict: higher unemployment, higher taxes, lower growth…
                                                                                                    • Figure 33: Economic expectations, December 2012
                                                                                                  • …but at least they’re not as bleak as they were in 2011
                                                                                                    • Figure 34: Net expectation of changes in selected macroeconomic measures, 2010-12
                                                                                                  • ‘More of the same – hopefully’
                                                                                                    • How much of the bad news gets through to consumers?
                                                                                                      • The impact of economic news on people’s financial management
                                                                                                      • Personal Financial Expectations

                                                                                                        • Key points
                                                                                                          • People expect stability for their own finances in 2013
                                                                                                            • Figure 35: Personal financial expectations, December 2012
                                                                                                          • People are more optimistic about their finances in 2013
                                                                                                            • Figure 36: Net expectation of changes in selected personal financial measures, 2010-12
                                                                                                          • Clearing debts to create a sense of security
                                                                                                            • Pessimism – and optimism
                                                                                                            • The Return of the Feelgood Factor

                                                                                                              • Key points
                                                                                                                • Few expect an immediate return of the feelgood factor
                                                                                                                  • Figure 37: Views on when the feelgood factor will return to the economy, December 2012
                                                                                                                • It’s hard to feel good when you’re worried about your job prospects
                                                                                                                  • Younger people are still full of hope
                                                                                                                    • People tend to expect more of the same – whether that’s good or bad
                                                                                                                    • Appendix: Consumers’ Current Financial Health

                                                                                                                        • Figure 38: Current financial situation, by demographics, December 2012
                                                                                                                    • Appendix: Changes in Financial Wellbeing

                                                                                                                        • Figure 39: Change in financial situation over the last year, by demographics, December 2012
                                                                                                                    • Appendix: Financial Priorities

                                                                                                                        • Figure 40: Most popular average importance of financial priorities, by demographics, December 2012
                                                                                                                        • Figure 41: Next most popular average importance of financial priorities, by demographics, December 2012
                                                                                                                    • Appendix: Challenges Affecting Household Finances

                                                                                                                        • Figure 42: Events that have affected household finances – have had to spend more on the weekly shop, by demographics, December 2012
                                                                                                                        • Figure 43: Events that have affected household finances – a substantial rise in home energy costs, by demographics, December 2012
                                                                                                                        • Figure 44: Events that have affected household finances – housing costs have increased, by demographics, December 2012
                                                                                                                        • Figure 45: Events that have affected household finances – employer has imposed pay cuts/pay freeze, by demographics, December 2012
                                                                                                                        • Figure 46: Events that have affected household finances – employer has cut or plans to cut jobs, by demographics, December 2012
                                                                                                                        • Figure 47: Events that have affected household finances – experienced difficulty getting a mortgage/credit, by demographics, December 2012
                                                                                                                        • Figure 48: Events that have affected household finances – been made redundant in the last two years, by demographics, December 2012
                                                                                                                    • Appendix: Discretionary Spending – Past and Present

                                                                                                                        • Figure 49: Intentions to buy new clothes, by demographics, December 2012
                                                                                                                        • Figure 50: Intentions to add to my savings, by demographics, December 2012
                                                                                                                        • Figure 51: Intentions to reduce non-mortgage debts (credit card, personal loan, overdraft etc), by demographics, December 2012
                                                                                                                        • Figure 52: Intentions to go to a concert/sporting event/theatre, by demographics, December 2012
                                                                                                                        • Figure 53: Intentions to go out for an expensive meal, by demographics, December 2012
                                                                                                                        • Figure 54: Intentions to book a holiday, by demographics, December 2012
                                                                                                                        • Figure 55: Intentions to spend money on my home (new kitchen, redecorate, new furniture etc), by demographics, December 2012
                                                                                                                        • Figure 56: Intentions to buy new electrical equipment (television, PC, games console etc), by demographics, December 2012
                                                                                                                        • Figure 57: Intentions to buy major domestic appliance (washing machine, fridge etc), by demographics, December 2012
                                                                                                                        • Figure 58: Intentions to buy/replace my car, by demographics, December 2012
                                                                                                                    • Appendix: Macroeconomic Expectations

                                                                                                                        • Figure 59: Economic expectations – interest rates, by demographics, December 2012
                                                                                                                        • Figure 60: Economic expectations – house prices, by demographics, December 2012
                                                                                                                        • Figure 61: Economic expectations – unemployment, by demographics, December 2012
                                                                                                                        • Figure 62: Economic expectations – taxes, by demographics, December 2012
                                                                                                                        • Figure 63: Economic expectations – the UK’s economic growth, by demographics, December 2012
                                                                                                                    • Appendix: Personal Financial Expectations

                                                                                                                        • Figure 64: Economic expectations – your household’s income, by demographics, December 2012
                                                                                                                        • Figure 65: Economic expectations – your savings, by demographics, December 2012
                                                                                                                        • Figure 66: Economic expectations – your debts, by demographics, December 2012
                                                                                                                    • Appendix: The Return of the Feelgood Factor

                                                                                                                        • Figure 67: Views on when the feelgood factor will return to the economy, by demographics, December 2012

                                                                                                                    Companies Covered

                                                                                                                    • Bank of England
                                                                                                                    • Northern Rock plc

                                                                                                                    Consumers and The Economic Outlook - UK - March 2013

                                                                                                                    £2,195.00 (Excl.Tax)