Election 2017: What does it mean for consumer confidence?

• Consumer confidence weakened in the run-up to the election, and concerns over Brexit have intensified.
• Consumer confidence rebounded after both the 2010 and 2015 elections, but the boost was relatively short-lived.
• However, the prospect of the UK heading towards a hung Parliament means that it’s hard to see any significant rebound.
• The truth is that people react much more to changes in their personal circumstances than to big-picture political issues. But even here the news is gloomy.
• In particular, the return of the income squeeze will put pressure on consumers’ budgets.

Consumer confidence has dropped in the run-up to the election

Uncertainty is never good for consumer confidence. The natural tendency in turbulent times is to take a safety-first approach to spending.

But when Theresa May called the election, there didn’t seem to be much doubt about the result. If anything, the predicted landslide would have removed some of the uncertainty associated with trying to negotiate the Brexit process with a slim majority.

As it transpired, of course, the campaign didn’t turn out to be the relaxed stroll to victory that so many people expected. The Conservatives’ failure to win an outright majority has huge repercussions for the political environment. For consumers, it’ll just add to the climate of uncertainty.

The uncertainty brought about by the election will be one factor behind the fall in consumer confidence that Mintel recorded in the month of May. The proportion of people who were confident about their finances over the coming year dropped from 31% to 28% – the lowest level since the slump in confidence that we recorded in July 2016, immediately after the result of the EU referendum was announced.

Little chance for a post-election bounce in sentiment…

Confidence rebounded after both the 2010 and 2015 elections. Similarly, although sentiment slumped immediately after the Brexit result was announced, it soon bounced back.

The inconclusive result of the 2017 election, though, will only increase the level of uncertainty among consumers. Mintel will be running fresh research over the next week or so, but it seems extremely unlikely that we’ll see a post-election bounce in sentiment.

… and there are further challenges ahead

Even if confidence does bounce back, though, the respite is likely to be short-lived. People react much more strongly to changes in their personal situation than they do to big-picture issues like elections. And here, there are reasons for concern.

From a consumer perspective, the impact of inflation on household budgets is the main worry. After two years of rising real incomes, we’re now back in a situation where prices are rising more quickly than wages. And people are well-aware of the threat posed by inflation. Mintel’s ongoing research into attitudes towards Brexit shows the biggest concern among consumers is its impact on prices. In May 2017, 49% thought it’d have a negative effect on the cost of living, up from 45% in February.

Our latest data also showed a significant increase in the level of concern over Brexit’s impact on house prices. This, too, could undermine confidence, and could be particularly damaging given that so much of the improvement in sentiment over the last few years has been driven by homeowners.

Uncertainty offers opportunities as well as threats

It’s not all bad news, of course. Employment is still strong, GDP is still rising, and recent surveys suggest strong performance in the manufacturing sector. From a consumer perspective, those two years of rising incomes mean that they should be much more resilient to any downturn than would have been the case a few years ago.

And, crucially, tough times open up new opportunities. The last income squeeze and the ensuing shift in consumer behaviour hit some categories hard, but even in the worst-affected markets, there were brands that prospered.

The companies that did well tended to be the ones who focused on value, not just price. People were still prepared to trade up to a higher price point, as long as they felt that they were getting bang for their buck. Sales of premium ready meals and luxury skincare products held up well, for example, largely because they gave hard-pressed consumers a chance to indulge themselves without breaking the bank.

But the overall picture for the consumer economy still looks challenging. Rising prices, the ongoing uncertainty surrounding Brexit and a slowing housing market will all act as a drag on sentiment in the coming months. Regardless of whether the nation is pleased or disappointed by the result of the election, the uncertainty seems likely to further undermine consumer confidence.

Toby Clark is the Director of Research EMEA at Mintel , where he has worked for over 10 years. Toby leads a large team of researchers who produce over 500 consumer reports annually on UK and European market sectors. Prior to this, Toby was Head of UK Financial Services research at Mintel.