When it comes to the state of the UK economy, recent statistics on the UK labour market gave people on both sides of the debate plenty of ammunition to support their views. But it seems clear to me that we’re still a long way from the return of the feelgood factor – and that the shopping habits that people adopted during the slowdown aren’t going to disappear at any point in the near future.
On the upside, the number of unemployed fell by another 132,000, long-term unemployment has fallen, and the fall in the number of unemployed under-25s fell by 102,000.
But there was also lots in there for the pessimist. The most eye-catching data was the fact that average wages are 0.2% lower than they were a year ago. When bonuses are excluded, then regular pay was actually up by 0.6%, but even 0.6% is still well short of the rate of inflation.
Anyone who has seen me speak about the post-recession consumer will know that I see the income squeeze as the most influential factor when it comes to consumer behaviour. Most of the news about the broader economy is positive, but at the moment the average consumer isn’t actually seeing much benefit. Spending is up, but a good proportion of this is fuelled by a steady increase in consumer credit, rather than because of an increase in real incomes.
That income data has been widely discussed. But fewer people commented on the fact that many of the jobs created were self-employed. This raises questions about the quality of the jobs that are being created. For every go-getting entrepreneur, there’s likely to be just as many people who have been pushed into self-employment because they have struggled to find a salaried role.
Mintel’s Consumers and the Economic Outlook – Quarterly Update – UK 2014 shows how much impact employment status has on people’s state of mind. There is a gulf in confidence between the employed and the self-employed. In June, 30% of full-time employees said their finances were pretty healthy, compared to 21% of the self-employed. At the other end of the scale, just 7% of employees were either struggling or already in financial trouble, compared to 14% of people who were working for themselves.
It’s important not to go overboard on the negatives. Being self-employed is better than being unemployed. And it’s better to have pay freezes than job losses. There’s no doubt that the economy is in much better shape than it was even six months ago. And although our data suggests that the increase in consumer confidence has stalled in recent months, people are still far more optimistic than they were a few years ago.
But we’re still a long way from returning to pre-crash spending habits. People are still wary, and they’re still looking to extract the maximum possible value from their spending. Whether they’re spending at Lidl or at Waitrose, they’re still making brands work really hard for their money. And this isn’t going to change over the next year or so. Five years of the income squeeze means that savvy shopping habits are deeply engrained.
There are still opportunities out there. As Lidl and Aldi have shown, the fact that people are really thinking about what they’re spending means that if you get both your product and your messaging right, then there are huge gains to be made. The flipside to that, though, is that if you get it wrong, your customers will punish you for it.
Brands are facing the perfect storm: switched-on consumers, with access to unprecedented levels of information, and intense competition from rival companies. Great news for the companies that really understand what their customers are looking for. But a disaster for anyone who loses touch with the market.
Toby has worked at Mintel for 13 years and leads the large team of researchers who produce over 500 business reports per year on UK and European market sectors. Prior to this, Toby was Head of UK Financial Services research at Mintel.
