UK: Deloitte Monday Briefing: The UK Consumer: Spending More, Earning Less

Last Updated: 28 October 2013
Article by Ian Stewart

Most Read Contributor in UK, August 2017

* UK consumer spending has been on a rising path for the last two years. Since the start of this year, retail sales have risen by over 4.0% and housing transactions are up by 16%. Car sales in September rose to the highest level since March 2008.

* Yet inflation and tax rises have continued to run ahead of growth in earnings. Over the last two years inflation and tax rises have outstripped earnings by 1.8%.

* The official data for real disposable income paint a rather less negative picture. This measure includes all sources of consumer income, including wages, savings, investments, pensions and benefits. On this indicator, consumer spending power has been broadly flat over the last two years.

* The disposable income data suggest that people with additional sources of income have fared better than those who are reliant on earnings. Digging into the data we find that the squeeze on real wages has been more acute in the private sector than the public sector.

* If real incomes are going sideways and, for many in work they are falling, what is driving the recovery in consumer spending?

* Consumers are certainly feeling more upbeat. In the last three months, consumer confidence has risen at the fastest rate in almost 30 years to reach the highest levels in seven years. 

* Rising equity prices and house prices have made consumers feel richer by increasing the value of their assets. Coupled with greater optimism about the economic outlook this seems to have given consumers the confidence to save less. The credit crunch caused a sharp rise in the savings ratio, pushing it to a peak of 8.6% of income. But it has since fallen and in the second quarter stood at 5.9%. Lower levels of saving are an important source of consumer spending power.

* Consumers have also been buying more on credit. The share of new cars being sold on credit reached a record high of 75% in September. More than £11 billion of credit has been advanced to new car buyers over the last year with an average loan of £14,622. Unsecured lending, which is typically used to finance consumer spending, is rising at rates last seen in early 2008. Meanwhile, the number of mortgage approvals made by banks and building societies has risen by more than 25% in the last year.

* Consumer spending power has had a significant boost from compensation payments made by the banks for the mis-selling of payment protection insurance (PPI). £12bn has been paid to consumers in PPI compensation since January 2011, a sum that could have financed the entire increase in consumer spending over the period twice over.  

* The recovery in UK consumer spending is real and broad based. But it is being driven by lower levels of saving, increased indebtedness and windfall gains from PPI compensation. These factors are unlikely to prove sustainable.

* For consumers to keep on spending earnings need to rise. Next year we expect inflation to fall, taxes to stay on hold and earnings to move higher. As a result, our guess is that 2014 will be the first year since 2009 that earnings outstrip inflation and tax changes.

* If we are wrong and the squeeze on earnings continues the consumer recovery will probably fade. With consumer spending accounting for about 60% of GDP that would deal a heavy blow to hopes of economic recovery in 2014.

MARKETS & NEWS

UK's FTSE 100 rose by 1.5% over the week, with risk assets performing strongly at the beginning of the week on speculation of continued US monetary easing.

Here are some recent news stories that caught our eye as reflecting key economic themes:

KEY THEMES

* The UK economy grew at an annual rate of 0.8% in the third quarter of 2013, the fastest rate since Q2 2010
* The US economy added a lower than expected number of jobs in September adding to concerns about the pace of the US recovery
* Bank of England Governor Mark Carney said the Bank would offer banks money for longer periods and widen the range of assets accepted as collateral
* Brazilian business confidence dropped to the lowest level since July 2009
* The body representing the US financial services industry said it will push for more co-operation with government following a simulated cyber-attack that exposed flaws that would have resulted in the closure of the US stock market.
* The US state of Oregon is considering taxing drivers for the distance they travel rather than the petrol they consume, due to increased fuel-efficiency and lower fuel use
* The FT reported that the world's first bond backed by home rental income – bundling cash flows from homes bought by investors – could come to market soon
* Happy Days, a new musical based on the 1960s American sitcom, has become the first theatrical production to use equity crowd-funding, as it raises the money it needs to tour the UK via the Seedrs crowd-funding platform
* Cyprus announced that it plans to remove most of the capital controls it brought in earlier this year in early 2014
* The Portuguese central bank claimed that Portugal has seen its first annual growth since before its bailout in mid-2011
* Germany's Bundesbank warned that apartment prices in Germany's largest cities may be overvalued by as much as 20%, driven by loose monetary policy set by the European Central Bank
* China introduced a new benchmark lending rate – the "loan prime rate" (LPR) – set by market participants who report the lending rates they are offering clients, as a step towards liberalising interest rates
* UK listed companies will pay more than £100bn in dividends next year, surpassing the previous record by £20bn, according to analysis from Capita Asset Services
* Funding Circle, one of the UK's largest peer-to-peer lenders, is to expand in to the US market via the acquisition of a San Francisco start-up
* Just 2% of the Chinese population account for around a third of global luxury goods consumption, according to research by A.T Kearney
* UK government agencies have produced a plan to capitalise on the growing popularity of British cider in growth markets such as America, where a bottle of Aspall's cider (£2.59 in England) is sold on wine lists for as much as $26 a bottle
* A poll in French newspaper Le Monde found that more than 70% of the French feel taxes are "excessive", with 80% believing the President François Hollande's economic policy is "misguided" and "inefficient"
* The FT reported that Brevan Howard, the world's third-largest hedge fund, has moved most of its operations out of the UK to escape EU regulation and grow internationally
* The Guardian reported that a number of British supermarkets have seen rising sales of "exotic" meats such as Oxtail, lamb's hearts and beef shins as consumers look to save money on cheaper cuts and emulate celebrity chefs
* Indian government archaeologists began excavating land near an ancient temple in the village of Daundia Khera, after a popular local holy man said he dreamed 1,000 tons of gold, worth approximately $40bn, is buried there – dream team

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.