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Deloitte: Reduction In Household Income Means Reduced Consumer Spending

Ethan Strassfield, Staff Reporter

One in five households in the UK have experienced a reduction in income while 7% of households have seen someone lose their job in the last quarter. This according to findings from Deloitte’s Consumer Tracker, a new regular monitor of consumer confidence and spending habits.

As a result, Tracker research indicates that over the last three months, 53% of respondents were pessimistic about disposable income, 28% felt negative about their personal debt, and 23% felt gloomy about job security.

“A fierce squeeze on disposable income and high levels of macroeconomic volatility pushed the consumer sector back into recession in 2011,” said Ian Stewart, chief economist at Deloitte. “The UK has generated far higher levels of inflation over the last year than any other industrialised nation and this has hit consumer spending power.

Research shows consumers have reduced their discretionary spending in the past three months. Consumer Tracker results indicate 41% of consumers are cutting back on entertainment (cinema, theatre, concerts), 36% are spending less on clothing and footwear, 28% on furniture and homeware, and 28% on holidays. In contrast, inflation is driving up the cost of essentials with half of all respondents spending more on utility bills, 44% spending more on food and 37% spending more on transport costs.

While consumers appear to be adapting their behaviour to the current economic environment by trading down, staying in and postponing the purchase of big-ticket items, Nigel Wixcey, UK head of consumer business at Deloitte noted: “Consumers are telling us they are deliberately making fewer impulse or spontaneous purchases. People are being forced to prioritise their spending habits.” Wixcey believes consumer caution presents opportunities for companies providing subscription television, DVD rentals or takeaway food.

In addition to making significant cutbacks, 13% of consumers plan to put more money into a savings account in the next three months, while an equal number intend to reduce their reliance on credit cards.

While consumers can expect some relief from lower inflation levels expected in 2012, Ian Stewart expects only a modest increase in household spending next year due to rising unemployment, limited credit supply and a fragile economy.

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