Each month the Scattered Clouds blog takes a look at the wonderful world of tourism through a data and evidence-led lens, all in pursuit of transforming tourism sector data into insight of course!
Economic headwinds easing… slightly - May 2024
It has been a turbulent few years for consumers with a conveyor belt of unpleasant economic shocks including the pandemic, Russia’s invasion of Ukraine, spiralling inflation and the mini-budget debacle of autumn 2022.
So how are UK consumers feeling as we head towards summer 2024?
Well, there is good news and there is bad news. Starting with the positives; inflation has fallen back from its nostalgic flirtation with a rate more akin to the 1970s or 80s than more recent times, wages have finally started to grow at a rate faster than inflation and… in fact that’s probably about it for good news.
On the other side of the ledger we have the fact that core inflation remains higher than the Bank of England would like it to be and as a result the widespread assumption from the start of the year that 2024 would herald multiple interest rate cuts has withered to murmurings that rates may not now be trimmed until the autumn.
With every passing month more households come face-to-face withe the reality of higher mortgage repayments as their fixed term deal expires. Those renting property are not immune from these higher housing costs either, with many landlords who bought simply to rent in an era of ultra-low mortgage rates now passing on the higher costs they face to their tenants.
In real terms the typical household was no better off in 2022 than they had been in 2016 according to data from ONS, with the Bank of England predicting growth between now and 2026 will sit somewhere between zero and anaemic.
Household have had several months to adapt to their weekly shop costing much more than it did a few years ago, but one of the reasons behind current sentiment (which I am coming to shortly) is that there is stuff we buy only occasionally, whether that’s a fridge freezer, a sofa, or a long-haul holiday. Discovering that these big-ticket items have risen sharply in price since our last purchase remind folk of just how constrained their spending power has become.
The long-running GfK Consumer Confidence Index has not been in positive territory since early 2016 and it reached its nadir in September 2022 (just after the mini-budget) with a score of -49. During the first four months of this year the score has been steady at at around-20, but that is still well below where it typically sat in the three or four years prior to the pandemic.
This all means that tourism businesses are having to woo potential visitors whose financial situation remains challenging.
A recent PwC study found that 29% of Brits anticipated spending more on holidays in the next year compared with last year, but this figure was outweighed by the 32% who said they expect to spend less, giving a net score of -12.
While not an obvious conclusion at first sight this in fact demonstrates how much we want to protect our holiday spending, as by contrast the net score for expected spending on the categories of “eating out” and “going out” stood at -25%. Even if we are holidaying it will likely be the case that we are looking for ways of reining in our spending while away from home. These results make for worrying reading for the hospitality industry.
A new wave of the sentiment tracker from the tourist boards of England, Wales and Scotland is due out in the coming days, but the most recent data suggested that 76% of us were planning a UK holiday or short-break in the next 12 months and 57% planning to take a foreign trip. In each case this was three percentage points higher than for the same time last year.
When asked whether more or fewer holidays are being planned than a year ago the proportion saying “fewer” was larger than that saying “more”, more so for overseas trips than domestic trips.
Unsurprisingly the main barriers to taking a domestic holiday or short-break centre around economic factors, most notably the rising cost of living, personal finances and the rising cost of holidays / leisure. One other barrier muscled in on these economic woes, namely “UK weather”, and given the wet and cold conditions that have featured in the past few weeks I don’t imagine the proportion citing this as a barrier will have declined when we get the next set of data.
We should not lose sight of the fact that averages don’t tell the whole story. Just because a hefty proportion of consumers are still struggling economically this does not mean there aren’t plenty who remain upbeat about their finances and who are willing to treat themselves to days out and holidays.
But adopting my stuck record mantra, even this segment of the market is still keen to ensure they are receiving value for money. The economic headwinds have indeed abated somewhat in recent months, but persevering with the weather analogy, for many consumers conditions are at best dull and drizzly. Maybe if the next few months bring better weather in a literal sense the economic mood will perk up, but that also relies on there being no new unwelcome economic shocks heading our way.
If you want to get in touch regarding this blog please email david@scatteredclouds.co.uk