Shifting consumer sentiment drives recovery

This year has been a remarkable one for the shift in consumer sentiment from being mired in recession mode at the start of the year to reaching a post-recession high this autumn.

Such shifts in sentiment have impacted on economic activity with both spending and saving confidence surging on the back of much improved employment prospects.

But there is a growing gender divide in confidence and the consumer recovery. The gender confidence gap has widened to 14 points – at a multi-year high. Businesses with far more female customers may not see as strong sales growth.

This autumn’s JGFR/GfK Financial Activity Barometer saw a surge in the proportion of adults  expecting to save, invest, borrow or repay debt (financially engaged), to the highest level since Q2 2010. Business volumes in Q4 at financial services businesses look set to show a big improvement.

Chart 1 Consumer confidence 1997-2013

Chart 2: Unemployment expectations

 
Chart 3: The gender gap in confidence

 
Chart 4: Financial engagement, 2002-13

 
At this year’s influential CBI conference Sir Mike Rake, the CBI President warned about the crisis of public confidence in big business, especially in banking and now in the energy sector and highlighted the need to understand more about consumer sentiment and the effect this has on politicians and now on policy.

In the financial services sector, the banking industry is at a crossroads, with a desire among policy makers to break up the dominance of the major UK banks. JGFR/GfK research over the past decade has found the top ten bank brands to consistently have a 80-90% market share of the main financial services provider market (around 90% of adults regularly cite having an MFSP).

Chart 5: The dominance of the main bank brands

 
At a recent conference ‘The Future for Regional Banks’ delegates were told of the easing of restrictions in getting approval to launch a bank. The Prudential Regulatory Authority is currently examining 21 new banking applications. Conference delegates also heard that having a healthy banking and financial services sector that is consumer focused is essential to avoid the mistakes of the past. Marrying up technology with a trusted safe and secure banking system, while ensuring a consistency in levels of product performance and service, will be a challenge for both existing and new banks.

Switching is a key aspect of the new consumer experience, where cost savings can be made through competition and is actively promoted by policy makers in banking and energy supply. Research by JGFR/GfK shows that despite the faster and guaranteed bank switching scheme launched in September, relatively few consumers (7%) are likely to switch accounts. One change that may hasten greater switching in the future is the weakening of the control of the major banks over the payments system that has acted as a costly barrier to entry for challenger banks.

Chart 6: Banks: to switch or not to switch? September 2013

 
Tracking the mood of the consumer will be an essential aspect in business planning and policy making in the coming years with consumer wellbeing centre-stage – be it financial, health or social.

The JGFR/GfK Olympics Legacy Tracker survey found the emergence of a post-Olympics ‘can do’ spirit with voluntary/community activity part of the new consumer mood, particularly among young people, providing opportunities for a new ‘bottom-up’-led agenda. Many charities (e.g. www.street-elite.org) are engaging the young through programmes that are training for work through sport and activity, giving them confidence to inspire others.

A new and challenging era has begun as the economic recovery gets underway, with the need to focus on consumer well-being and sentiment at its heart.

Read more from John.