With every bit of economic analysis that has emerged so far in 2015 it is clear that the UK recovery of 2014 is starting to slow.
For all the positives of last year – high GDP growth compared to the rest of the OECD, low inflation, low interest rates and employment growth – we also know:
- · Real wages will not recover to pre-recession levels until 2017 at the earliest, and currently stand at 2002 levels
- · There is greater public awareness that austerity is set continue for the duration of the next parliament – pretty much regardless of who wins this year’s General Election (The current debate is about degrees of austerity, not austerity per se)
- · The Eurozone crisis, and its potential impact on UK PLC, is more visible than 12 months ago
- · And, somewhere in the near future, the Bank of England and its Monetary Policy Committee have the tricky task of deciding when to start the process of returning interest rates to their historically normal levels, without stopping any economic momentum in its tracks
On the upside, we have the unexpected bonus of plummeting oil prices that might add 0.5% to UK GDP this year according to some estimates, but might also spell the end for North Sea oil (and the deficit-reducing tax revenue it generates). It is perhaps not surprising that, though still growing, rates of growth are starting to slow. The consumer is also in a more circumspect mood than last year.
The current economic outlook is an almost unprecedented patchwork of positives and negatives. The impact of this is to create a sense of fragility around the recovery overall, so that even those people who are experiencing the benefits of economic growth are not sure how long it will last. More testing still for those of us trying to anticipate consumer behaviour is the fragmenting effect of these economic mixed-messages. For example, the prospects for private sector workers and public sector workers look increasingly polarised. The latter have five more years of pay restraint and job cuts to face, whilst the former are starting to see real wage growth. Within the private sector, much of the recent job growth has been driven by self-employment, with precariousness and self-reliance that it implies. So we can also imagine a polarising of prospects for the employed and the lower earning self-employed. Geographically, the recovery is unevenly distributed – not just north versus south or rural versus urban, but at an incredibly localised level.
Given this context, when trying to understand consumer behaviour, we might be better served thinking of ‘consumer fragments’ rather than our traditional consumer segments.