The latest Which? Quarterly Consumer Report reveals a mismatch between perception and reality as confidence is on the rise, yet 1.5 million more families are feeling financially squeezed…
Today sees the one year anniversary of our Consumer Insight Tracker that has been tracking consumer experience of the economy.
It’s safe to say that it’s been a year of ups and downs for the economy. If we look back to the beginning of 2012, we started the year in a double-dip recession (although this has now been ruled out) and attitudes towards the economy and our personal finances were poor.
A year on, people are feeling more optimistic. Yet, there’s a mismatch between this optimism and the reality – more families are finding that their money just isn’t stretching as far as it used to.
From glory to gloom
As you can see in this graph, the Olympics and Diamond Jubilee did wonders for people’s general life satisfaction. Not only did this mean us Brits were feeling more optimistic, it also meant we spent more money which in turn stimulated the economy. However, as winter approached, things like energy prices caused the cost of living to rise again, and following a decline in GDP we felt gloomier about the economy.
Post-Christmas, February 2013 was the month where people felt the worst about their finances and more people were cutting back on their spending, while turning to credit and their savings just to get by. This was also the time where people were most likely to be worried about essential costs (like food and energy), although this worry has stayed high throughout the year.
A year on from the launch of the Which? Consumer Insight Tracker, we find that a third of families, 9 million households, are feeling squeezed, which is up from 7.5 million in June 2012.
Confidence is creeping upwards
However, confidence has gone up, which coincides with recent positive announcements about the state of the economy. The proportion of people who say the economy will get better in the next year has gone up from 16% in June 2012 to 24% this year, and a lower proportion describe the economy as ‘poor’ (down from 76% to 66%). People are also less likely to cut back on non-essential spending than they were a year ago – things like big ticket household purchases, home improvements and holidays.
Yet, there is a tension in our research – while confidence in the economy is up, people’s spending power has declined. The reality is that households are facing huge inflation on essentials, with food prices up by 4.3%, and gas and electricity bills up by around 8%. Two thirds of the population say that the economy is having a negative impact on their personal finances.
The problem is that this combination of increased confidence to spend yet less money is not sustainable. Consumers may be aiding our fragile economic recovery, but they’re having to get into debt or dip into their savings to do so. Ultimately, the government must do more to keep spiralling housing, food and energy prices in check.
What are your expectations for the coming year? Do you think the economy will pick up or is it further gloom for your household budgets?