Consumers and the Economic Outlook - UK - February 2014

INTRODUCTION
Abbreviations
EXECUTIVE SUMMARY
The state of the UK economy
Sustained economic growth
Figure 1: Quarterly change in UK GDP, Q1 2009-Q4 2013
Unemployment falls to a four and a half year low
Figure 2: Seasonally adjusted unemployment rate, Q1 2009-Q4 2013
Household expenditure increasing as confidence slowly begins to return
Figure 3: Real household income and expenditure per head, Q1 2004-Q3 2013
Consumers’ current financial situation
Consumers’ finances are healthier overall
Figure 4: Household financial situation index, February 2009-November 2013
Consumers’ finances are “less bad”, rather than fully recovered
Spending priorities
Staying on top of household bills is the main priority for consumers
Figure 5: Financial priorities for the next 12 months, November 2013
Financial expectations
Consumers are still pessimistic… but slightly less so than last year
Figure 6: Macroeconomic expectations for 2014, November 2013
Most consumers expect their income to remain stable in 2014
The majority of consumers don’t expect the feel-good factor to return in 2014
Figure 7: Return of the feel-good factor, November 2013
What we think
ISSUES IN THE MARKET
Are consumers experiencing an economic recovery?
Who’s benefiting from the UK’s growth and who isn’t?
What impact have house prices had on consumers’ increased confidence?
Which age groups are the most optimistic about their prospects in 2014?
TREND APPLICATION
Using the influence of family to improve long-term savings habits
Extended brands can help consumers get back on track with spending
Teaching financial responsibility can help financial brands to stay ahead
ECONOMIC CONDITIONS AND OUTLOOK
Key points
The UK economy is growing
Figure 8: Quarterly change in UK GDP, Q1 2009-Q4 2013
Unemployment falls to four and half year low
Figure 9: Seasonally adjusted unemployment rate, Q1 2009-Q4 2013
Youth unemployment remains persistently high
Government debt continues to rise as a percentage of GDP
Figure 10: UK government debt as a percentage of GDP, January 2009-November 2013
CONSUMER FINANCES
Key points
Household spending increasing as confidence slowly begins to return
Figure 11: Real household income and expenditure per head, Q1 2004-Q3 2013
Consumer spending power is squeezed
Figure 12: Increases in the cost of living and the growth in average wages, January 2008-November 2013
Savings ratio shows that consumers remain cautious
Figure 13: Household saving ratio, Q1 2008-Q3 2013
Increased lending driving household expenditure higher
Figure 14: Total gross lending to individuals, credit card and non-credit card unsecured lending (excluding student loans), January 2009-November 2013
UK government stimulates increased mortgage lending
Figure 15: Secured lending, total gross and changes in net, January 2009-November 2013
CONSUMERS’ CURRENT FINANCIAL HEALTH
Key points
More consumers report having money left at the end of the month
Figure 16: Current financial situation, 2011, 2012 and 2013
The proportion of consumers who are doing okay has remained flat
Consumer optimism will not automatically translate into consumer spending
Figure 17: Household financial situation index, February 2009-November 2013
The squeezed middle-age groups
Figure 18: Consumers’ current financial health, by demographics, November 2013
Retirees are more likely to be financially healthy
Figure 19: Current financial situation, by working status, socio-economic group and household income, November 2013
CHANGES IN FINANCIAL WELLBEING
Key points
Despite economic improvement, consumers still feel worse off overall...
Figure 20: Change in financial situation compared to how it was a year or so ago, November 2013
…but consumers’ financial situation has improved compared to last year
Figure 21: Change in financial situation over the past year, January 2012-November 2013
There has been little change in consumers’ finances over the past year
The “sandwich generation”’ feeling the most financially worse off
Figure 22: Change in financial situation over the last year, by age and working status, November 2013
Younger consumers feeling financially better off
Consumers employed part-time are likely to feel financially worse off
Women are feeling financial pressure more than men
London is leading the UK’s economic recovery
Figure 23: Change in financial situation over the last year, by region and area, November 2013
A third of Scottish consumers worse off than last year
REASONS FOR IMPROVEMENT IN FINANCIAL WELLBEING
Key points
Higher wages are the tipping point for an economic recovery
Figure 24: Reasons for an improvement in financial position over the past year, November 2013
Consumers feel better off with a financial safety net
Job security is more likely to make young consumers feel better off
Figure 25: Reasons for improvement in financial situation, by age, November 2013
Wealthier consumers are more likely to have experienced a rise in income
Figure 26: Reasons for improvement in financial situation, by annual income and housing, November 2013
Renting has got more expensive, whilst mortgage repayments have remained low
REASONS FOR WORSENING OF FINANCIAL CIRCUMSTANCES
Key points
Increasing household costs are the main reason for worsening finances
Figure 27: Reasons for a worsening of financial situation, November 2013
Consumer feel worse off if they don’t have extra money for enjoyment
Rising rents and mortgages are most problematic for 25-34-year-olds
Figure 28: Reasons for a worsening of financial situation, by age, November 2013
FINANCIAL PRIORITIES
Key points
For half of consumers, staying on top of bills is a top priority
Figure 29: Financial priorities for the next 12 months, November 2013
Consumers would rather save before they spend
Under-45s remain uninterested in saving for retirement
Some priorities are more pressing than others
Figure 30: Financial Priorities, November 2013
For consumers who want to buy a new home, it is a top priority
CHALLENGES AFFECTING HOUSEHOLD FINANCES
Key points
Rising costs of goods and energy prices are affecting disposable income
Figure 31: Challenges affecting household finances, November 2013
Consumers’ responses have been broadly consistent since 2011
Figure 32: Events that have affected your household finances, 2011-13
Young families are most likely to have experienced difficulty getting a mortgage or credit
Figure 33: Challenges affecting household finances, by children and age, November 2013
Consumers’ perception of the economic recovery varies greatly
Figure 34: Challenges affecting household finances, by demographics, November 2013
MACROECONOMIC EXPECTATIONS FOR 2014
Key points
Consumers are still pessimistic… but slightly less so than last year
Figure 35: Macroeconomic expectations for 2014, November 2013
Consumers expect economic growth to be higher than last year
Consumers expect energy bills to continue to rise in 2014
Consumers are more optimistic than they were in 2012
Figure 36: Net expectation of changes in selected macroeconomic measures, 2011-13
Older consumers are most confident that house prices will rise
Figure 37: Macroeconomic expectations for 2014, by age, November 2013
PERSONAL FINANCIAL EXPECTATIONS FOR 2014
Key points
Consumers expecting their income to remain stable in 2014
Figure 38: Personal financial expectations for 2014, November 2013
Consumers are still looking to lower debts and build up savings
Figure 39: Balance of personal financial expectations, December 2011, December 2012 and November 2013
Younger consumers are more likely to expect to increase their savings
Figure 40: Personal finance expectations for 2014, by age and region, November 2013
The economic recovery is being driven by London
THE RETURN OF THE FEEL-GOOD FACTOR
Key points
The majority of consumers predict that the feel-good factor won’t return in 2014
Figure 41: The expected return of the feel-good factor, December 2012 and November 2013
…however, consumers are less pessimistic
Young consumers are the most optimistic
Figure 42: The expected return of the feel-good factor, by gender and age group, November 2013
Over-65s are also more optimistic
APPENDIX – CONSUMERS’ CURRENT FINANCIAL HEALTH
Figure 43: Consumers’ current financial health, by demographics, November 2013
APPENDIX – CHANGES IN FINANCIAL WELLBEING
Figure 44: Change in financial situation over the last year, by demographics, November 2013
APPENDIX – REASONS FOR IMPROVEMENT IN FINANCIAL WELLBEING
Figure 45: Most popular reasons for improvement in financial situation, by demographics, November 2013
Figure 46: Next most popular reasons for improvement in financial situation, by demographics, November 2013
Figure 47: Other reasons for improvement in financial situation, by demographics, November 2013
APPENDIX – REASON FOR WORSENING OF FINANCIAL CIRCUMSTANCES
Figure 48: Most popular reasons for a worsening of financial situation, by demographics, November 2013
Figure 49: Next most popular reasons for a worsening of financial situation, by demographics, November 2013
Figure 50: Other reasons for a worsening of financial situation, by demographics, November 2013
APPENDIX – FINANCIAL PRIORITIES
Figure 51: Financial priorities – Making sure I don’t fall behind on regular bills, building up my emergency savings, saving for a specific reason and spending money on enjoying myself, by demographics, November 2013
Figure 52: Financial priorities – Paying off or reducing my non-mortgage debts, saving for retirement, overpay or repay my mortgage and buying a new home, by demographics, November 2013
Figure 53: Financial priorities – consolidating my debts, taking out credit and none of these, by demographics, November 2013
Figure 54: Financial priorities – Building up my emergency savings, by demographics, November 2013
Figure 55: Financial priorities – Saving for a specific reason, by demographics, November 2013
Figure 56: Financial priorities – Saving for retirement, by demographics, November 2013
Figure 57: Financial priorities – Paying off or reducing my non-mortgage debts, by demographics, November 2013
Figure 58: Financial priorities – Spending money on enjoying myself, or the occasional treat, by demographics, November 2013
Figure 59: Financial priorities – Making sure I don’t fall behind on regular bills and other financial commitments, by demographics, November 2013
APPENDIX – CHALLENGES AFFECTING HOUSEHOLD FINANCES
Figure 60: Challenges affecting household finances – Been made redundant in the last 2 years, by demographics, November 2013
Figure 61: Challenges affecting household finances – Experienced difficulty getting a mortgage/credit, by demographics, November 2013
Figure 62: Challenges affecting household finances – A substantial rise in home energy costs, by demographics, November 2013
Figure 63: Challenges affecting household finances – Employer has imposed pay cuts/pay freeze, by demographics, November 2013
Figure 64: Challenges affecting household finances – Employer has cut or plans to cut jobs, by demographics, November 2013
Figure 65: Challenges affecting household finances – Have had to spend more on the weekly shop, by demographics, November 2013
Figure 66: Challenges affecting household finances – Housing costs have increased, by demographics, November 2013
APPENDIX – MACROECONOMIC EXPECTATIONS FOR 2014
Figure 67: Economic expectations – Interest rates, by demographics, November 2013
Figure 68: Economic expectations – House prices, by demographics, November 2013
Figure 69: Economic expectations – Unemployment, by demographics, November 2013
Figure 70: Economic expectations – Taxes, by demographics, November 2013
Figure 71: Economic expectations – The UK’s economic growth, by demographics, November 2013
Figure 72: Economic expectations – Petrol prices, by demographics, November 2013
Figure 73: Economic expectations – Energy bills, by demographics, November 2013
APPENDIX – PERSONAL FINANCIAL EXPECTATIONS FOR 2014
Figure 74: Economic expectations – Your household income, by demographics, November 2013
Figure 75: Economic expectations – Your savings, by demographics, November 2013
Figure 76: Economic expectations – Your debts, by demographics, November 2013
APPENDIX – THE RETURN OF THE FEEL-GOOD FACTOR
Figure 77: Expected return of the feel-good factor, by demographics, November 2013