Scottish consumer confidence fell by four percentage points during the second quarter, reaching a historic low of -20% and below the previous record set during the fourth quarter of 2020, when the nation was under Covid-19 lockdown.
The latest Deloitte Consumer Tracker showed that 64% of Scottish consumers saw their overall personal expenditure increase in the second quarter, up from 46% in the first and 45% in the fourth quarter of 2021.
Discretionary spending in Scotland fell by four percentage points in to -6% during the second quarter of 2022.
With the exception of holidays, spending in Scotland was down on all leisure categories compared to the first three months of the year, with betting and gaming experiencing the biggest drop of -8 percentage points quarter-on-quarter.
Scottish consumer confidence in the state of the economy fell by 14 percentage points to -85%; similar to levels last seen in summer 2020.
The research is based on responses from 3,031 UK consumers between during the middle of June, in the immediate days following the UK’s interest rate rise to 1.25%.
Céline Fenech, consumer insight lead at Deloitte, commented: “With inflation going up faster than average earnings, there are now more consumers feeling the cost-of-living pinch than not.
“The current situation means consumers are significantly changing their spending behaviours to adapt - this might be by simply buying less, switching to cheaper brands or stores, and postponing major purchases.”
Compared to the previous quarter, Deloitte’s spending sentiment data fell across both day-to-day and non-essential items - by two and five percentage points, respectively - indicating that consumers are cutting their overall expenditure.
Fenech added: “With consumer spending equating for half to two-thirds of all economic activity, this could signal major headwinds for the UK economy.”
While the majority of consumers have seen their expenditure increase due to inflation, a growing number of consumers are, conversely, spending less - 27% in the second quarter, up from 21% in the first.
Of those spending less this quarter, 58% said it is in an effort to save money, with 45% choosing cheaper brands; more than twice that were doing so a year ago (19%).
Ian Stewart, chief economist at Deloitte, commented: “Consumers are facing levels of inflation that have not been seen in 40 years and a growing risk of recession.
“Consumer sentiment about the outlook for the economy has plummeted - while the headline job numbers remain strong, our survey shows that consumers are anticipating a cooling in the labour market.”
Amid growing challenges from inflation and rising interest rates, the chief financial officers of the UK’s largest firms now expect the economy to fall into recession within the next 12 months.
The second quarter of the year saw spending fall across almost every category of leisure, with eating out, drinking in pubs and bars, and in-home entertainment seeing the most dramatic quarter-on-quarter fall; by -19, -14, and -13%, respectively.
However, many consumers have made the most of this year’s additional bank holiday and continued to book both long and short breaks.
The return of many summer events has also lifted spend in this category, albeit only by three percentage points compared to the same time last year, signalling that consumers are reining in on non-essentials.
Simon Oaten, partner for hospitality and leisure at Deloitte, said: “From full-capacity weddings, to cricket and live music, consumers have clearly enjoyed a return to a ‘normal’ summer schedule, aided in many instances with good weather.
“However, the outlook for the next quarter is less sunny, with consumers indicating that they will be reducing their spending across every leisure category.
“Until then, many continue to book long-awaited holidays and hotel stays - both abroad and in the UK - although the speed of recovery may be hindered by further disruption in the UK’s transport network.”
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