UK’s consumers are starting to crack

The remarkable strength of the UK consumer is finally starting to crack. Higher bills for household energy, more expensive fuel, pricier groceries and rising interest rates are beginning to take their toll on shoppers.
Consumer confidence slumped in April, as energy prices soared and national insurance contributions rose. GfK’s measure of consumer confidence slumped to -38, a level last seen in the early 1990s as well as in 2008.
Of particular note is the GfK index that tracks how people feel about making a major purchase: The most recent data suggest Brits don’t think this is a good time to buy expensive items such as furniture or cars.
According to research from McKinsey & Co, UK consumers are at “peak pessimism,” meaning they’re the most downbeat they’ve been about the country’s post-pandemic recovery since March 2020.
The primary driver for this sentiment is the increase in prices for essential items, with more than 90% of consumers seeing a change in the cost of their weekly grocery basket in March and April.
Measures of consumer confidence indicate how people feel about the future. But there is mounting evidence that this is already starting to take its toll on real-world spending.
Sales weakened in April, according to the British Retail Consortium and KPMG’s Retail Sales Monitor. Although this figure compares with the period a year ago, when consumers were unleashing pent-up demand after stores reopened, it’s clear that spending is sliding. With total sales falling by 0.3% in April, and inflation estimated at 9.1% that month, this implies a big fall in the volume of goods sold.
It’s a similar picture when it comes to eating in restaurants. Although sales are still up compared with 2019, according to the Coffer CGA Business Tracker, which measures the performance of the industry, they have slowed since Easter.
What’s more, the 2% growth in April is likely to have been driven by rising menu prices, masking some of the early signs of consumers cutting back.
Some of the change may be due to the unwinding of pandemic habits and Brits going back to their pre-lockdown preferences. In April 2021, for example, they were willing to freeze in beer gardens just to enjoy a pint in a pub. The end of Covid restrictions perhaps made that less of a priority in 2022. Similarly, online sales are cooling as shoppers return to shopping centers and high streets once more.
Big-ticket items were hit hardest by the slowdown in April, according to the BRC and KPMG. Many Brits refreshed their homes when they were spending much of their time there. Now, furniture sales are suffering. In addition, the sector is seeing price rises, because items are generally bulky and expensive to ship in containers.

—Bloomberg