Scottish consumer confidence remained steady at -11% in Q4 2021, in line with the rest of the UK, which experienced a drop of one percentage point over the same period.
Overall personal expenditure in the final quarter of 2021 increased for 45% of consumers in Scotland, up from 37% in Q3, according to the latest Deloitte Consumer Tracker. Of these, 68% revealed it was due to rising prices.
Céline Fenech, Consumer Insights Lead at Deloitte, commented: “Scottish consumer confidence has held steady at -11%, but the expected squeeze on spending power and higher inflation may still dent the hopes of a consumer recovery. However, some consumers are in the fortunate position of having higher levels of savings compared to before the pandemic, indicating some financial resilience.
“The further easing of restrictions should also support an improvement in sentiment, in turn boosting spending. However, this may not occur until inflation has peaked so the critical question in the meantime is whether consumers can afford to continue spending.”
The Deloitte Consumer Tracker is based on responses from 3,177 UK consumers (309 from Scotland) between December 31, 2021 and January 5, 2022, against the backdrop of rising Omicron variant cases and with consumers in Scotland living under CV19 restrictions.
State of economy divides consumers and business leaders
Of the Consumer Tracker’s seven measures of confidence, sentiment around the state of the economy dropped seven percentage points in Q4. This fall in sentiment amongst consumers is in stark contrast to business executives across the UK who intend to make increased capital investment a strong priority for the year ahead.
Ian Stewart, Chief Economist at Deloitte, commented: “Across the UK, sharply higher inflation and a squeeze on consumer spending power has hit consumer confidence. With inflation set to rise further a tough few months are in prospect. However, high savings, strong consumer balance sheets and rising employment should help soften the blow to spending caused by higher inflation.”
Consumers remain confident on job prospects in current labour market
Whilst businesses have faced significant recruitment difficulties over the last three months, a sustained ‘candidates’ market’ means many consumers remain optimistic about their own job prospects. The Q4 data suggests Scottish consumers are currently more confident than their UK counterparts when it comes to job opportunities and career progression, with growth of eight percentage points on Q3, in comparison to the one percentage point growth seen by the rest of the UK in Q4. This increase brings Scotland more in line with the UK, with net balances of -1% and -3% respectively. Sentiment measures around job security are also up by two percentage points.
Stewart continued: “A strong recovery in activity as lockdown restrictions eased has ensured most furloughed workers have been able to return to the workforce. At the same time, the ratio of unemployed people to vacancies sits at a record low meaning, theoretically at least, there is a job available for almost every person out of work.”
Half-term breaks release some pent-up demand, but consumers delay booking too far ahead
With essential spending set to take precedence over discretionary spending in the quarter ahead, consumers are signalling that holidays and socialising could be delayed, despite pent-up demand.
Scottish consumers indicated that their intended spending on discretionary items will fall by 10 percentage points in Q1 2022. This is more pronounced in social categories, including going out and eating at restaurants, down -20 and -14 percentage points respectively. Whilst overall spending on essential goods and services will increase slightly in Q1 2022 (2 percentage points), Scottish consumers expect utility bill expenditure specifically to increase by eight percentage points, quarter-on-quarter.
Gavin Hood, advisory corporate finance partner at Deloitte in Scotland, said: “The extent to which consumer finances come under pressure in the months ahead will determine the speed of recovery. The hospitality and leisure sector has been one of the hardest-hit throughout the pandemic, with the normally busy festive period punctured by cancellations over Omicron fears.
“With consumers eager to see a return to restaurants and holidays, the hospitality and leisure sector will welcome the recent lifting of most restrictions, which have already unlocked some of the pent-up demand for services. Flexible offerings will play an important part in helping to regain the trust and confidence of consumers for further bookings in 2022.”