Q1 2016

The Deloitte Consumer TrackerConfidence pauses as consumers react to wider uncertainty

Overall consumer confidence (q/q)*

* Net balances

Key Indicators

Confidence in level of disposable income (q/q)*

Essentials spending (y/y)*

Discretionary spending (y/y)*

ONS retail sales value growth Feb-16 (y/y)

CPI inflation Mar-16 (y/y)

LatestPrevious

-7% -8%

Previous Latest

-11% -14%

Previous Latest

+5% +5%

Previous Latest

-8% -7%

Previous Latest

+2.7% +2.1%

Previous Latest

+0% +0.5%

The latest Deloitte Consumer Tracker shows a fall in consumer confidence in the first quarter of 2016, a sign of a degree of caution returning to the consumer sector. Our index is now one point down from Q4 2015 and three points lower than this time last year. Confidence was down across five of our six measures, with consumers’ confidence in their level of debt the only element of the index to see a rise.

The primary driver behind the fall in overall confidence is a strong seasonal downturn in sentiment around health and wellbeing. This year the trend has been particularly pronounced, with the confidence reading for health and wellbeing falling by six points year-on-year to its lowest level since our survey began. The recent introduction of the sugar tax, the flu season arriving later than usual and wider media coverage around health and health care have focused consumers’ attention on their wellbeing. In addition, we believe that the growing use of health and fitness wearables and apps may also be increasing awareness of health and wellbeing as an issue.

Homeowners remain more confident than non-homeowners, who report a four point fall in overall confidence from the previous quarter. Homeowners’ overall confidence remains flat at minus six. The difference in confidence between these two groups is now at its widest ever point, and comes as the Office for National Statistics (ONS) reported a rise in UK private rental prices of 2.6% in the 12 months to February 2016. In London, rental prices increased by 3.8% over the same period. The increases are above the 2.2% growth in average weekly earnings from regular pay in January 2016.

Consumers in London were significantly less confident than consumers in other regions, with overall confidence falling ten points from this time last year. The capital also experienced a sharper fall in sentiment around disposable incomes with a drop of nine points compared to last quarter and a six-point decline in confidence in job security. London, with its particular exposure to developments in emerging and financial markets, has seen consumer confidence disproportionately affected.

Most consumers continue to spend more on essentials while the majority have reduced spending on small and big ticket discretionary items in the seasonal downturn following Christmas. There are now more consumers adopting expansionary behaviours and fewer being defensive in their spending compared to this time last year. However, the gap between expansionary and defensive behaviours has flattened since the start of this year, suggesting consumers have been more measured in their spending.

Despite consumer-focused economic fundamentals remaining strong – for instance low unemployment, low cost of borrowing, low inflation and gradually improving earnings – consumers are clearly influenced by lower UK economic growth projections. Our survey is showing that consumers are still relatively upbeat about their own finances, despite growing concerns in the corporate sector about the global slowdown and the potential for Brexit, as highlighted by the first quarter Deloitte CFO Survey. The question is how long this will remain the case, as consumers show signs of being aware of these headwinds.

AuthorsBen PerkinsHead of ResearchConsumer Business020 7307 2207beperkins@deloitte.co.uk

Aino TanResearch Manager Consumer Business020 7007 4406aintan@deloitte.co.uk

Rebecca ThomsonResearch ManagerConsumer Business020 7007 0891 rebthomson@deloitte.co.uk

Chart 1. Deloitte Consumer ConfidenceNet % of UK consumers who said their level of confidence has improved over the past three months

-20%

-16%

-12%

-8%

-4%

0%

Q12016

Q42015

Q32015

Q22015

Q12015

Q42014

Q32014

Q22014

Q12014

Q42013

Q32013

Q22013

Q12013

Q42012

Q32012

Q22012

Q12012

Q42011

Q32011

Deloitte Insight

Five of the six confidence measures fell compared to the same time last year. The only area where consumers felt more confident was in their level of debt, which rose by one point from Q1 2015 and is up three points from last quarter.

Chart 2. UK consumer sentiment about personal situationNet % of consumers who said their level of confidence had improved in the past three months

Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016

-50%

-40%

-30%

-20%

-10%

0%

10%

Your general healthand wellbeing

Your levelof debt

Your householddisposable

income

Your jobopportunities/

career progression

Your jobsecurity

Your children’seducation

and welfare

-11%

-12%

-8%

-13%

-19%

-40%

-31%

-20%

-13%

-14%

-10%

-10%

-5% -4%

-7%

-9%

-9%

-3% -2% -1%

-3% -2%

+1%

+1%

-1%

-12% -1

0%

-5%

-1%

-5%

The fall in overall confidence was driven by a sharp decline in sentiment around general health and wellbeing which fell two points compared to the previous quarter and six points compared to Q1 2015. At minus 19 in Q1 2016, the confidence rating is the lowest it has ever been. This fall comes at a time of growing awareness around health and healthcare related issues and growing sales of wearable fitness devices and apps.

Chart 3. Consumer sentiment about general health and wellbeing

Net % of consumers who said their wellbeing has improved over the past three months

Q12016

Q42015

Q32015

Q22015

Q12015

Q42014

Q32014

Q22014

Q12014

Q42013

Q32013

Q22013

Q12013

Q42012

Q32012

Q22012

Q12012

Q42011

Q32011

-20%

-18%

-16%

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

Consumers reported feeling less confident about their job security and job opportunities. These measures fell by three and five points respectively compared to Q1 2015. This decline in job related confidence must be viewed in the context of increasing awareness of global economic uncertainty.

Chart 4. Consumer sentiment about job security and job opportunities

Net % of UK consumers who said their level of confidence has improved over the pastthree months

Q12016

Q42015

Q32015

Q22015

Q12015

Q42014

Q32014

Q22014

Q12014

Q42013

Q32013

Q22013

Q12013

Q42012

Q32012

Q22012

Q12012

Q42011

Q32011

Your job security Your job opportunities/career progression

-20%

-15%

-10%

-5%

0%

Consumer confidenceHealth and wellbeing drives fall in confidence

2 | The Deloitte Consumer Tracker Q1 2016 Confidence pauses as consumers react to wider uncertainty

The gap between the confidence of homeowners and non-homeowners is now at its widest point since our survey began. While confidence among those who own their homes remained flat, non-homeowners reported a four point fall from the previous quarter. The findings emerged shortly before the ONS reported a rise in UK private rental prices of 2.6% in the 12 months to February 2016. The increase in London was 3.8% during the same period. Both rates are significantly above the 2.2% growth in average weekly earnings from regular pay reported in January 2016.

Chart 5. Overall confidence of non-home owners vs homeownersNet % of non-homeowners and homeowners who say their confidence has improvedChart 5. Overall confidence of non-home owners vs homeownersNet % of non-homeowners and homeowners who say their confidence has improved

-20%

-15%

-10%

-5%

0%

Q12016

Q42015

Q32015

Q22015

Q12015

Q42014

Q32014

Q22014

Q12014

Q42013

Q32013

Q22013

Q12013

Q42012

Q32012

Q22012

Q12012

Q42011

Q32011

Non-homeowners Homeowners

Consumers in London were significantly less confident than in other regions, with Londoners’ confidence in job security falling by six points and in disposable income by nine points, compared to the previous quarter.

Chart 6. Consumer confidence in LondonNet % of people in London who say their confidence has improved

Job security Disposable income

-35%-30%-25%-20%-15%-10%-5%0%5%

Q12016

Q42015

Q32015

Q22015

Q12015

Q42014

Q32014

Q22014

Q12014

Q42013

Q32013

Q22013

Q12013

Q42012

Q32012

Q22012

Q12012

Q42011

Q32011

Consumers are beginning to experience the headwinds facing the other parts of the economy. In the corporate sector perceptions of uncertainty are at a three-year high. The first quarter Deloitte CFO Survey found that 83% of CFOs now rate the level of external economic and financial uncertainty facing their business as above normal, high or very high.

Chart 7. Deloitte CFO Survey% of CFOs who rate the level of external financial and economic uncertainty facing their businessas above normal, high or very high

45%

55%

65%

75%

85%

95%

2016Q1

15Q3

15Q1

14Q3

14Q1

13Q3

13Q1

12Q3

12Q1

11Q3

11Q1

2010Q3

Consumer confidenceConfidence among Londoners and non-homeowners falls

The Deloitte Consumer Tracker Q1 2016 Confidence pauses as consumers react to wider uncertainty | 3

On balance, consumers have increased their spending on essentials. However, the opposite is true in the discretionary categories. Quarter-on-quarter spending on discretionary items saw a seasonal drop as consumers made more considered spending decisions after Christmas.

Chart 8. Essentials vs discretionary Net % UK consumers spending more by category

Essentials Small-ticket items Big-ticket items

-20%

-15%

-10%

-5%

0%

5%

10%

15%

Q1

2016

Q4

2015

Q3

2015

Q2

2015

Q1

2015

Q4

2014

Q3

2014

Q2

2014

Q1

2014

Q4

2013

Q3

2013

Q2

2013

Q1

2013

Q4

2012

Q3

2012

Q2

2012

Q1

2012

Q4

2011

Q3

2011

Our data shows that net spending on essentials such as housing, transport and utilities fell compared to Q1 2015. Expenditure on discretionary categories such as going out, clothing and footwear, and restaurants and hotels saw a small rise year-on-year.

Chart 9. Category spending in the last three monthsNet % consumers spending more over the past three months

-14% -13% -12%

-12%

-15%

-26% -2

4%

-18% -1

5% -13%

-23%

-17% -1

3% -12% -11%

-17% -1

4% -10%

-10% -8

%

-20% -1

7%-1

2% -10%

-6%

-15% -1

2%-7

%-8

% -6%

-12% -9

% -5%

-5%

-4%

-11% -8

% -4%

-3%

-2%

29%

20%

13%

2% 1% 1%6%

9% 7%

12%

11%

10%

9%6%

23% 26

%21

%6% 8%

43%

49%

33%

17%

12%

Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016

Goi

ng o

ut

Clo

thin

g an

d fo

otw

ear

Res

taur

ants

and

hot

els

Elec

tric

al e

quip

men

t

Maj

or h

ouse

hold

appl

ianc

es

Hol

iday

s (lo

ng b

reak

)

Tran

spor

t

Land

line/

mob

ileph

one,

Inte

rnet

and

TV s

ubsc

ript

ions

Hou

sing

(e.g

. ren

t,m

ortg

age)

Gro

cery

sho

ppin

gfo

r fo

od a

ndno

n-al

coho

lic b

ever

ages

Uti

lity

bills

(e.g

. wat

er,

elec

tric

ity,

fue

ls)

Alc

ohol

ic b

ever

ages

and

toba

cco

Furn

itur

e an

dho

mew

are

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

Total inflation is 0.5%, up from 0% in March 2015. While consumers saw higher airfares and prices of clothing and footwear going up in March 2016, they continued to benefit from strong competition contributing to deflation in the food category.

Food & Non-alcoholic beverages

Alcoholic beverages, Tobacco & Narcotics

Clothing & Footwear

Housing, Water & Fuels

Furniture, household equip. & repairs

Health

Transport

Communication

Recreation & Culture

Education

Hotels, Cafes & Restaurants

Miscellaneous goods & Services

Total inflation

Chart 10. Inflation (CPI) % change year-on-year

Source: ONS

2.12

1-0.5

4.810

-0.2-0.7

1.40.9

-0.1-1.9

1.82.1

0.6-0.2

0.40.7

1.4-0.2

13.4

-2.7-3

0.50

Mar 16 Mar 15

Consumer spendingSpending remains robust

4 | The Deloitte Consumer Tracker Q1 2016 Confidence pauses as consumers react to wider uncertainty

Consumer expenditure data up to the end of 2015 shows flattening consumer expenditure with minor year-on-year increases compared to Q4 2014.

Chart 11. Consumer expenditureAnnual % change year on year

Source: ONS

-5%-4%-3%-2%-1%0%1%2%3%4%

Q4

2015

Q3

2015

Q2

2015

Q1

2015

Q4

2014

Q3

2014

Q2

2014

Q1

2014

Q4

2013

Q3

2013

Q2

2013

Q1

2013

Q4

2012

Q3

2012

Q2

2012

Q1

2012

Q4

2011

Q3

2011

Q2

2011

Q1

2011

Q4

2010

Q3

2010

Q2

2010

Q1

2010

Q4

2009

Q3

2009

Q2

2009

Q1

2009

Q4

2008

Q3

2008

Q2

2008

Q1

2008

Q4

2007

Q3

2007

Q2

2007

Q1

2007

Q4

2006

Q3

2006

Q2

2006

Q1

2006

More recent data on retail sales values shows a quarter-on-quarter fall of 0.2% in February from the previous month. However, year-on-year, sales values grew 2.1%.

Chart 12. Retail sales% change in volume and value year-on-year

Source: ONS

-2

-1

0

1

2

3

4

5

6

7

8

Q12015

Q12014

Q12013

Q12012

Q12011

Q12010

Q12009

Q12008

Q12007

Q12006

Q12005

Q12004

Q12003

Q12002

Q12001

Q12000

Q11999

Q11998

Q11997

Q12016

Value Volume

Compared to a year ago, consumers continue to move away from defensive spending behaviour, while more are adopting expansionary behaviour. The gap between the two has flattened quarter-on-quarter, suggesting consumers are becoming more measured in their spending.

Chart 13. Expansionary and defensive spending behaviour% UK consumers spending more or less

Defensive Expansionary

21%

22%

23%

24%

25%

26%

27%

28%

Q12016

Q42015

Q32015

Q22015

Q12015

Q42014

Q32014

Q22014

Q12014

Q42013

Q32013

Q22013

Q12013

Q42012

Q32012

Q22012

Q12012

Q42011

Consumer spendingSpending remains robust

The Deloitte Consumer Tracker Q1 2016 Confidence pauses as consumers react to wider uncertainty | 5

Consumer financeIncome and debt both growing

Disposable income has continued to increase but savings have edged lower compared to the same quarter last year, suggesting consumers are willing to spend money.

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

Q4

2015

Q3

2015

Q2

2015

Q1

2015

Q4

2014

Q3

2014

Q2

2014

Q1

2014

Q4

2013

Q3

2013

Q2

2013

Q1

2013

Q4

2012

Q3

2012

Q2

2012

Q1

2012

Q4

2011

Q3

2011

Q2

2011

Q1

2011

Q4

2010

Q3

2010

Q2

2010

Q1

2010

Q4

2009

Q3

2009

Q2

2009

Q1

2009

Q4

2008

Q3

2008

Q2

2008

Q1

2008

Q4

2007

Q3

2007

Q2

2007

Q1

2007

Q4

2006

Q3

2006

Q2

2006

Chart 14. Income vs savings ratio Net % of UK consumers saving more vs UK household year-on-year disposable income growth

Savings ratio Disposable income

Consumers are also signalling that they are overall more confident about the level of their debt.

Chart 15. Consumer confidence in their level of debtNet % of consumers who said their confidence has improved over the last three months

-20%

-10%

0%

Q1

2016

Q4

2015

Q3

2015

Q2

2015

Q1

2015

Q4

2014

Q3

2014

Q2

2014

Q1

2014

Q4

2013

Q3

2013

Q2

2013

Q1

2013

Q4

2012

Q3

2012

Q2

2012

Q1

2012

Q4

2011

Q3

2011

Secured and unsecured household debt has indeed continued to rise as consumers appear comfortable to take on a more leveraged position.

Chart 16. Consumer creditNet secured and unsecured lending to individuals (% change year-on-year)

UK personal borrowing: Dwellings – Net lending (%YOY) SADL

UK consumer credit: Net unsecured lending to individuals (%YOY)

-4%-2%0%2%4%6%8%

10%12%

Jan

2006

Jan

2007

Jan

2008

Jan

2009

Jan

2010

Jan

2011

Jan

2012

Jan

2013

Jan

2014

Jan

2015

Jan

2016

6 | The Deloitte Consumer Tracker Q1 2016 Confidence pauses as consumers react to wider uncertainty

In the coming three months consumers expect to spend more on essentials such as housing as well as discretionary categories such as holidays. They expect to spend less on groceries and big tickets items such as electrical goods. -30%

-20%

-10%

0%

10%

20%

30%

40%

Chart 17. Category spending over the next three monthsNet % of UK consumers spending more by category

Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016

-20% -1

8%-1

3% -11%

-12%

-16%

-17%

-10%

-11%

-11%

-12%

-15% -1

1%-1

3% -11%

-20% -1

8%-1

2% -11% -9

%

-15%

-17%

-11% -9

%-9

%

19% -16%

-10%

-10% -8

%

-18%

-18%

-11%

-7%

-8%

1%-2

%1%

-2%

-3%

12%

11%

10%

0%-1

%

-6%

-7%

1%4%

1%

10%

9% 9%7%

4%

21%

27%

16%

3%0%

Elec

tric

al e

quip

men

t

Goi

ng o

ut (e

.g. c

inem

a, t

heat

re, c

once

rts,

etc

.)

Uti

lity

bills

Furn

itur

e an

d ho

mew

are

Clo

thin

g an

d fo

otw

ear

Gro

cery

sho

ppin

g fo

r fo

od a

nd n

on-a

lcoh

olic

bev

erag

es

Alc

ohol

ic b

ever

ages

and

tob

acco

Maj

or h

ouse

hold

app

lianc

es

Res

taur

ants

and

hot

els

(eat

ing

out

and

shor

t br

eak)

Land

line/

mob

ile p

hone

, In

tern

et a

nd c

able

/TV

sub

scri

ptio

ns

Hol

iday

s (lo

ng b

reak

)

Hou

sing

Many of the economic fundamentals affecting the consumer sector remain strong. Unemployment is lower than a year ago while earnings are gradually growing and interest rates remain low.

Chart 18. Consumer indicators: Now and a year ago

Old New Change

Dec‑Feb 2015 Nov‑Jan 2016

Unemployment 5.6% 5.1%

Jan‑15 Jan‑16

Average weekly earnings growth rate 1.7% 2.2%

Mar‑15 Mar‑16

Interest rates 0.5% 0.5%

Despite this positive environment consumers’ confidence in the wider economy has seen a sharp fall. Confidence in the general economic situation is now 18 points lower than the same time last year, as wider economic factors, including news about lower global growth prospects, affect consumer sentiment.

Chart 19. Economic confidenceConsumer confidence in the general economic situation over the coming 12 months

-60

-50

-40

-30

-20

-10

0

10

20

15/0

3/20

16

15/1

1/20

15

15/0

7/20

15

15/0

3/20

15

15/1

1/20

14

15/0

7/20

14

15/0

3/20

14

15/1

1/20

13

15/0

7/20

13

15/0

3/20

13

15/1

1/20

12

15/0

7/20

12

15/0

3/20

12

15/1

1/20

11

15/0

7/20

11

15/0

3/20

11

15/1

1/20

10

15/0

7/20

10

15/0

3/20

10

15/1

1/20

09

15/0

7/20

09

15/0

3/20

09

15/1

1/20

08

15/0

7/20

08

15/0

3/20

08

15/1

1/20

07

15/0

7/20

07

15/0

3/20

07

15/1

1/20

06

15/0

7/20

06

15/0

3/20

06

Source: GfK

OutlookPossible headwinds in the coming months

The Deloitte Consumer Tracker Q1 2016 Confidence pauses as consumers react to wider uncertainty | 7

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.

Deloitte LLP is the United Kingdom member firm of DTTL.

This publication has been written in general terms and therefore cannot be relied on to cover specific situations; application of the principles set out will depend upon the particular circumstances involved and we recommend that you obtain professional advice before acting or refraining from acting on any of the contents of this publication. Deloitte LLP would be pleased to advise readers on how to apply the principles set out in this publication to their specific circumstances. Deloitte LLP accepts no duty of care or liability for any loss occasioned to any person acting or refraining from action as a result of any material in this publication.

© 2016 Deloitte LLP. All rights reserved.

Deloitte LLP is a limited liability partnership registered in England and Wales with registered number OC303675 and its registered office at 2 New Street Square, London EC4A 3BZ, United Kingdom. Tel: +44 (0) 20 7936 3000 Fax: +44 (0) 20 7583 1198.

Designed and produced by The Creative Studio at Deloitte, London. J5410

ContactsNigel WixceyIndustry Leader, Consumer Business020 7303 5007nigelwixcey@deloitte.co.uk

Ian GeddesLead Partner, UK Retail020 7303 6519igeddes@deloitte.co.uk

Graham PickettLead Partner, UK Travel, Hospitality and Leisure01293 761232gcpickett@deloitte.co.uk

About this researchThe Deloitte Consumer Tracker is based on a consumer survey carried out by independent market research agency, YouGov, on our behalf. This survey was conducted online with a nationally representative sample of over 3,000 UK adults aged 18+ between 18 and 20 March 2016.

A note on the methodologySome of the figures in this research show the results in the form of a net balance. This means that in a survey of 100 respondents, assume that 30 reported they are spending more, 50 reported no change and 20 reported they are spending less. The net balance is calculated by subtracting the number that reported they spent less from the number that reported they spent more, i.e. 30 – 20 = 10. This means 10 per cent of consumers reported that they spent more rather than less.

8 | The Deloitte Consumer Tracker Q1 2016 Confidence pauses as consumers react to wider uncertainty