When Mintel decided to run our Bitesize Briefing event on consumers’ reactions to Brexit on 23 May, we were still being told that we’d be leaving the EU on 29 March.
Instead, I ended up standing in front of an audience of Mintel’s clients, trying to predict the impact of Brexit on consumer spending on the very day that Britons went to the polls to elect a new wave of MEPs.
It could have been worse, though. At least Theresa May held off from resigning for long enough to mean that I didn’t have to totally re-write the presentation!
The truth is that almost three years on from the referendum, we’re still at a stage where both a no-deal Brexit and no Brexit at all are both possible outcomes. There’s huge uncertainty on both a political and an economic front.
Consumer confidence is strong, despite the uncertainty
At times like this, we’d usually expect consumer confidence to take a hit. That’s certainly what we saw when Theresa May called a snap election in 2017, and around the time of the referendum itself. Uncertainty tends to make people nervous.
But that’s not happening. In fact, our data shows that people are actually feeling pretty good about their finances, and they’re more confident about their household finances than they’ve been for years. In May 2019, 76% of people say their finances are either “healthy” or “OK”, compared to 71% immediately after the referendum.
Other economic indicators also point to a relatively positive consumer base. The savings ratio, for example, shows that people are spending a higher proportion of their incomes than was the case a year or so ago. If people were desperately worried about their financial future, we’d expect to see the opposite: when consumers are nervous, they focus on reducing debts or building up their savings.
Why are people feeling so positive?
I think there’s a couple of factors at play here.
First and foremost, there’s the simple fact that as a whole, households are probably in as good a position as they’ve been at any point since the 2008 financial crisis. In particular, unemployment is at near record lows, and wage growth continues to outpace inflation.
As always, there are caveats. There are still massive disparities across income groups: for low-income households, austerity has never really ended. And many of the jobs created are insecure, or part-time. But across the population as a whole, we’re in a better place than we were a few years ago.
The boy that cried wolf?
There’s another reason behind the resilience. After three years of flux, it could just be that people have started to tune out the noise, and decided to get on with their day-to-day life.
There’s only so many times you can hear about imminent economic meltdown before it starts to get… well… a little bit dull. At some point, you stop worrying about what’s happening in Westminster, and focus on the fact that you’re still in a job, and that your wages are still beating inflation.
How long can the optimism last?
The big question is whether or not this positivity is sustainable. At Mintel, we’re experts in consumer behaviour, not economic forecasters. But even so, there are clear warning signs. Business investment fell in 2018 – its worst run since just after the last recession. And while preparations for March’s Brexit-that-never-was boosted economic activity, stockpiling components isn’t going to help the economy grow in the longer term.
Even the drop in the household savings ratio could spell trouble. Short-term, it’s great for businesses that people are keeping on spending. But it makes them incredibly vulnerable to any kind of financial shock. Our Consumers, Saving and Investing report from January 2019 shows that a third of consumers have less than £500 in savings.
Whatever your view on Brexit, it seems inevitable that leaving the EU will cause at least some disruption to the economy. When so many people don’t have enough saved up to fix a broken boiler, let alone survive a short spell of joblessness, it’s not going to take a lot of disruption to pitch some people into real financial difficulties.
What contingency plans are you making for your brand?
At the moment, so much of the talk about planning for Brexit is focussed on the practicalities. Making sure that manufacturers have enough components to keep production going. Minimising the impact of border checks on food shipments. Relocating staff or offices in order to make sure that businesses still have a presence inside the EU.
But given the risk that a disorderly Brexit would pose to consumer confidence and, in turn, consumer spending, companies need to make sure that they’re Brexit-proofing their brand as well as their operations.
How this is done is going to be different for every brand. But we’ve weathered a lot of recessions at Mintel, and we’ve learned a lot about consumer behaviour during those recessions.
The most dangerous thing to do is to assume that when money is tight, people will just cut out the luxuries. Some of the biggest winners of the last recession – the likes of premium skincare, or sparkling wine – were absolute luxuries. They’re products that no one actually needed, but that did a great job of lifting people’s mood in tough times.
Instead, one of the most risky places to be is in the middle market – neither cheap enough to be a real money-saving option, nor luxurious enough to feel like an indulgence. It might feel safer to stay in that middle ground, but as any number of brands found out during the last slowdown, it’s a fine line between trying to maximise your appeal, and ending up with an offering that’s too bland to really appeal to anyone.