Consumer Confidence Hits Record Low And Retail Sales Show Discount Trend

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Consumer Confidence
  • UK consumer confidence sinks to 50 year low amid concerns about the cost of living and wider economic outlook
  • Evidence that shoppers are intent on seeking out bargains amid the cost of living crisis
  • FTSE 100 unperturbed by falling confidence and wider risks as the week ends
  • Brent crude expected to end the week lower, reflecting concerns about a global economic slowdown and potential supply boosts from produ

Q2 2022 hedge fund letters, conferences and more

 

Sophie Lund-Yates, Lead Equity Analyst at Hargreaves Lansdown:

“UK consumer confidence has plummeted to the lowest level since comparable records began, as the soaring cost of living casts serious doubt over people’s personal finances, while wider economic slowdown concerns are also a source of anxiety. In monthly research from GfK, the August index score for consumer confidence fell to minus 44, from minus 41 the previous month. This move is hardly surprising given prices are rising at double digits, while we’re seeing the largest drop in real wages for more than 20 years. The read across of this for the broader economy is that we now know as a certainty that nerves are getting worse, not better. That has far-reaching implications for corporate margins as we’re likely to see increased discounting, as well as a sustained trend of people looking for bargains.

That’s precisely what the latest ONS Retail figures have shown, where discounts online helped lift retails sales in July compared to June. However, sales fell on a three month basis and compared to 2021 three monthly volumes fell 4.9%. Data implies a stark 10.4% rise in prices over the year which simply can’t be stomached by many customers. Non-food stores sales volumes fell by 0.7% over July, while food sales barely nudged. This implies a purposeful shift away from non-essential spending, and even when buying everyday items, what’s being loaded onto the conveyor belt is highly controlled. This is a trend unlikely to reverse while inflation persists. Getting inflation back in line is a huge ask, with the underlying causes of soaring commodity prices and supply bottlenecks difficult for central banks to address with interest rates alone.

The FTSE is unperturbed by the darkening mood music, largely because this has already been priced in, with the FTSE100 struggling to find its jumping-off point in the year-to-date. News of further consumer turmoil has been seen coming down the pipes for some time.

Brent crude is hovering at around $96 per barrel as it’s on track to end the week lower, as concerns about a global economic slowdown and potential supply boosts from major producers outweighing signs of stronger fuel demand. Recession fears are being heightened, not least because the US Federal Reserve seems fixated on further ramping interest rates, which while aimed at bringing inflation under control, stirs up further questions of the economy’s ability to pick itself up.”


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