Belfast Telegraph

Income squeeze 'hindering consumer spending power'

Northern Ireland consumers are making "significant cutbacks" in spending, as one in five households see a drop in income, according to a new report.

Consultancy firm Deloitte's new consumer tracker survey found one-fifth of households saw a reduction in income in the last quarter.

Factors include unemployment, loss of bonuses, reductions in overtime and increased part-time working.

As a result, consumers' outlook is gloomy, with 54% feeling pessimistic about disposable income. Over one-third (34%) reported feeling negative about personal debt.

Spending cutbacks are evident across all categories. Just over 60% of consumers are spending less on entertainment, 38% on clothes and footwear and 44% are cutting back on holidays.

In contrast, inflation is driving up the cost of essentials with half of all respondents spending more on utility bills and 37% spending more on food.

With 45% spending more on transport costs, Northern Ireland is hardest hit in the UK in this category.

Deloitte chief economist Ian Stewart said: "A fierce squeeze on disposable income and high levels of macroeconomic volatility pushed the consumer sector back into recession in 2011. The UK has generated far higher levels of inflation over the last year than any other industrialised nation and this has hit consumer spending power. Inflation should fall sharply in 2012, bringing some relief to hard pressed consumers.

"But with unemployment heading up, credit in short supply and the economy in a fragile state we would expect household spending to increase only modestly in 2012."

However, the survey indicates that reductions in total expenditure in some categories have resulted from consumers buying cheaper items rather than buying fewer items. Sales volumes are flat rather than falling for the final quarter of 2011.

Graeme McCrum, senior manager at Deloitte Belfast, said: "Discretionary spending has been hit hard in the past three months, particularly in Northern Ireland as we face rising transport and utility costs. Consumers are adapting their behaviour to the current economic environment by trading down, staying in and postponing the purchase of big-ticket items.

Deloitte's findings echo figures released by the business body CBI this week. Although sales figures were up due to Christmas shopping and no repeat of December 2010's Arctic weather, big-ticket purchase volumes were below normal levels.

Mr McCrum said the habit changes could present opportunities to firms providing products such as subscription TV, DVD rentals or takeaway food.

He added: "Consumers are telling us they are deliberately making fewer impulse or spontaneous purchases."