60 Seconds on the Ongoing Consumer Squeeze

August 8 2017

You gotta eat. So where will spending be cut?

The Backdrop:

  • The Brexit vote drove Sterling down & food prices have risen

  • We now find ‘essentials’ are taking a larger share of disposable income

  • Already-constrained consumers are having to adapt to these unwelcome changes

  • Real wages are falling and, whilst borrowing has risen, this is not a permanent fix

  • Indeed, the Bank of England is cautioning re 10% p.a. unsecured loan growth

  • The BRC now tells us July retail sales growth was ‘underpinned by Food sales alone, while Non-Food sales relapsed into negative territory.’


Bigger ticket:

  • Consumer constraint is negatively correlated to leisure spending

  • However, spending on ‘affordable treats’ has historically held up well – at least for a time

  • Consumers seek to protect their ‘lifestyle’ but big ticket spend is more vulnerable

  • Spend here can be postponed but ‘experiences’ (pizza, beer, cinema – even some large items such as holidays) would be lost forever

  • The SMMT reported new car sales down 9.3% in July and cumulatively down 2.2% y-t-d

  • DFS says the ‘UK furniture market continues to be very challenging’



  • Consumers are becoming more defensive with their spending.

  • Food is important, trading down is an option but people have to eat

  • Leisure spending will hold up (for a while) & inbound tourism growth should help

  • But watch this space. Directionally, this is somewhat sub-optimal

  • And supply growth, think casual diners, ‘better burgers’ etc., remains an issue