May 2024 Consumer Sentiment Index NI | Published: 29/05/2024

Mood of Northern Ireland consumers improves in May

Caution still prevails but Northern Ireland consumers less negative about outlook for economy and household finances
Expected income gains and easing in price pressures eases concerns
Drop in fears about economy may reflect expectations for improved policy-setting
Northern Ireland consumers still constrained in their spending plans
Special survey question suggests large differences between Northern Ireland consumers in their capacity to handle a financial emergency
- 47% of Northern Ireland consumers would use their savings
- 11% would use their current income
- 20% would borrow on a credit card, from a bank, credit union or other lender
- But 13% say they wouldn’t be able to deal with an unexpected financial difficulty

Analysis by Austin Hughes, economist.

Summary

Northern Ireland consumer confidence improved significantly between January and May 2024. While it remains the case that consumers are cautious about both the general economic outlook and their household finances, there has been a clear easing in the degree of concern and negativity around economic and financial prospects for Northern Ireland in recent months.

The recent trend in Northern Ireland consumer sentiment has been notably better than that seen in the comparable sentiment survey for the Republic of Ireland but it has been broadly comparable overall to the change in consumer confidence for the UK as a whole between January and May.

The details of the Northern Ireland consumer sentiment survey show a clearly less negative trend in thinking on the economic outlook than has been the case in the corresponding surveys for the UK as a whole or the Republic of Ireland between January and May.

This correction from a comparatively negative assessment by Northern Ireland consumers in January may owe something to signs of stronger activity in the Northern Ireland economy of late as well as expectations for domestic policy initiatives with the return of the Northern Ireland Assembly.

The broad message of the May Credit Union Northern Ireland Consumer Sentiment Survey (in partnership for Core Research) is one of a continuing easing in concerns on the part of Northern Ireland households. However, if worries have eased, they remain far from over.

The sense of continuing if diminished concerns is reflected in the fact that negative responses continue to outweigh positive responses across all the main elements of the survey.

Wide differences across Northern Ireland households in the degree of their current financial difficulties are suggested in the range of responses to the special question asked in the May sentiment survey as to how consumers would handle an unexpected financial emergency costing £750.

While a notable 47% of consumers would fund such an expense from savings, a further 28% say they would borrow from a financial lender or from family and friends. A significant 13% of Northern Irish consumers say they would not be able to deal with an unexpected bill or outlay of this size at present.

Section I; NI consumers still cautious but less concerned now than at the start of 2024

The May 2024 Credit Union Northern Ireland Consumer Sentiment Survey (in partnership with Core Research) points to a further and faster easing in the severe nervousness that gripped consumers in Northern Ireland (and elsewhere) through the past couple of years.

The easing in consumer concerns is being driven primarily by slightly less negative developments in economic and financial conditions than were seen through much of the past couple of years or might have been threatened for 2024.

Importantly, in terms of judging the mood of Northern Ireland consumers, it is not the case that cost-of-living pressures and economic uncertainty have disappeared completely and even less so that markedly positive trends have now become firmly established in the economic and financial factors of most importance Northern Ireland consumers. However, it is encouraging that Northern Ireland consumers seem to sense that the period of most intense pressure is behind them and expect some further easing in pressures in the year ahead.

Economic gloom eases markedly

IAs economic forecasts both for Northern Ireland itself and for key trading partners remain largely downbeat for the year ahead, it is scarcely surprising that, as the diagram below illustrates, more Northern Ireland consumers continue to hold negative rather than positive views on the broad economic outlook for the next twelve months.

However, the more important aspect is that the gradually improving trend in responses has picked up notably of late, and this change has been more pronounced than seen in corresponding confidence surveys for the UK as a whole or for the Republic of Ireland.

The balance between negative and positive responses has trended in a generally positive direction through the past five iterations of the sentiment survey and the gap has closed markedly further since the beginning of the beginning of the year.

As the diagram shows, the change between January and May is driven by a marked easing in negative responses (from 52% to 42% of responses) and a more modest increase in positive responses (from 26% to 29%).

While Northern Ireland economic output declined (by 0.3%) in the final quarter of 2023 compared to the previous three months, it remained positive on an annual basis, in contrast to declines for the UK as a whole and the Republic of Ireland. More significantly, business survey evidence suggests a clear pick-up in activity in Northern Ireland in the early months of 2024.

The sense of a more encouraging recent trend that lessens the prospect of a markedly weaker outturn this year appears to be filtering into the thinking of Northern Ireland consumers. The return of the Northern Ireland assembly may also be seen as removing some downside risk to local economic conditions.

Job fears persist on contrasting news

In contrast to the improving mood of Northern Ireland consumers in regard to the general economic outlook, there was no change in thinking on the prospects for employment and unemployment between January and May.

In part, this result may reflect contrasting news on the jobs front in Northern Ireland of late. The number of redundancies, both notified and confirmed, in the twelve months to April 2024 each doubled compared to the previous twelve-month period, highlighting a potentially significant threat to job security. At the same time, official employment data show continued increases in number at work between the final quarter of 2023 and the first quarter of 2024.

Another consideration is that throughout the five rounds of the Credit Union Northern Ireland Consumer Sentiment Survey (in partnership with Core Research), consumer thinking on the jobs market has not been nearly as negative as it has been on broader economic prospects. As a result, it may take more decisive news on the jobs front to markedly swing current thinking in one or other direction.

Household finances still a sore point for Northern Ireland consumers but a lot less gloom about the year ahead

As is the case with consumer confidence surveys globally, the cost-of-living crisis continues to translate into widespread worries about household finances on the part of Northern Ireland consumers.

In this context, it may worth emphasising the difference from a consumer’s perspective between slower inflation and still stubbornly high living costs. For example, while the UK’s annual rate of inflation has fallen from its recent peak of 11.1% in October to 2.3% in April 2024, the cost of living had risen by a cumulative 21.3% over the past three years and, on an annualised basis rose by 6.2% between January and April 2024. As a result, cost-of-living pressures remain a major issue for many Northern Ireland households.

Against this backdrop, the modest but clear easing in negativity on the part of Northern Ireland consumers in the May 20204 sentiment survey in regard to their own household finances should be seen as a very encouraging development.

Importantly, but not surprisingly, the change in Northern Ireland consumers thinking on their personal financial circumstances is more pronounced in relation to their expectations for the next twelve months than in their experience of the past twelve months.

Even though there was a modest improvement in thinking on how household finances had evolved through the past year, the May sentiment survey found that nearly half of consumers in Northern Ireland felt their own financial circumstances has worsened in the past twelve months compared to one in four who felt their circumstances had improved.

As can be seen in the diagram, there has been a marked improvement in consumer thinking on the twelve-month outlook for personal finances between January and May, to the point where roughly equal numbers see an improvement as see a further deterioration.

Our sense is that the easing in concerns around household finances reflects a number of developments. One important element is the widespread expectation that inflation should return to altogether more normal levels in the year ahead. A second consideration is the widespread anticipation of cuts in interest rates in coming months. In this context, the August 2023 Credit Union Northern Ireland Consumer Sentiment Survey (in partnership with Core Research) found that 59% of consumers in Northern Ireland believed that Bank of England rate hikes have had a negative impact on their household finances. So, it is likely that the prospect of lower rates would be expected to be a positive for Northern Ireland consumers household finances.

In addition, the prospect of a public sector pay deal following the return of the Northern Ireland Assembly as well an increase in the minimum wage from April 1st to £11.44 per hour from £10.42 should have prompted some improvement in expectations for household finances.

In this context, the experimental earnings release based on the HMRC’S PAYE system show median earnings in Northern Ireland increased 6.8% y/y in April, which, given the recent easing in inflation, translates into the largest inflation-adjusted increase since the cost-of-living crisis began a couple of years ago.

Although Northern Irish consumers were less negative in relation to their household finances in May, they remain constrained in their spending plans. As the diagram below illustrates, Northern Ireland consumers are a little less inclined to buy big-ticket items in May than they were in January. We would also note that this element of the survey has tended to change less markedly than other elements, suggesting that the life cycle of appliances plays an important role in these purchasing decisions.

We think this fractionally poorer reading can be explained by a combination of factors. First of all, the January reading for this element of the survey was probably boosted by price-discounting in post-Christmas sales. Second, it may be that some consumers are waiting for cheaper financing when borrowing costs are reduced. Finally, it should be noted that many Northern Ireland households remain under significant financial pressure. As a result, consumers are replacing big-ticket items such as furniture and household ‘white goods’ less frequently.

Section II; Wide differences between Northern Ireland consumers in their capacity to cope with a financial emergency

As was the case in the April 2023 survey, the May 2024 Credit Union Northern Ireland Consumer Sentiment Survey (in partnership with Core Research) included an additional question focussed on households’ capacity to weather a financial emergency. The format of the question is based on a similar question asked in the regular ‘Report on the Economic Well-Being of U.S. households’ conducted each year by the US Federal Reserve.

The responses given by Northern Irish consumers to the question ‘How would your household deal with an unexpected financial emergency costing £750? in the May 2024 sentiment survey are shown in the diagram below.

We interpret these results as suggesting that three in five Northern Irish consumers could handle a financial emergency reasonably comfortably-either by drawing down savings or from current income (47% and 11% respectively).

More males than females said they would use their savings in the event of an unexpected bill. Savings were also more commonly cited by those indicating they had no difficulty making ends meet at present and less frequently by those on lower incomes and those aged between 35 and 54.

There was no difference between males and females in the group who said they would fund a financial emergency from current income. Those aged over 55 were more than twice as likely to say they would pay an unexpected bill from current income. Not surprisingly, this response was more prevalent among those on relatively large incomes and those saying they had no difficulty making ends meet at present.

Another one in five consumers (20% of those surveyed) might be described as able to cope with an unexpected expense, in that they would deal with such a difficulty by borrowing, either by using a credit card (13%), by borrowing from a bank or credit union (7%) or by borrowing from another lender (1%).

A further one in ten would borrow from family or friends (8%) or would sell something (2%). This response was more likely to come from females than males, from those on low incomes and, perhaps surprisingly, from those aged 35 to 44.

However, as many as one in eight (13%) of Northern Irish consumers say would be unable to deal with an unexpected financial difficulty at present. While there is a margin of error around survey results, this would correspond to around 190-200,00 Northern Ireland adults who say they do not have the financial capacity to deal with an unexpected outlay of £750 at present.

Considering the strains posed by rapidly increasing consumer prices through the past year, it is not surprising that a significant number of Northern Irish consumers say they have no capacity to handle a financial emergency at present.

The proportion of Northern Ireland consumers giving this response at 13% is broadly similar to the 15% of consumers in the Republic of Ireland who gave this response to a similar question (The question for consumers in the Republic of Ireland cited an unexpected expense of €1,000 which corresponds to around £850 at current exchange rates).

More females than males said they wouldn’t be able to cope with a financial emergency and it was most prevalent among those citing difficulties making ends meet. Perhaps surprisingly, this response was most common among those aged 45-54, possibly reflecting significant pre-existing financial commitments. It is also notable that there was a significant incidence of this response among those on relatively high incomes likely reflecting substantial committed outgoings for these consumers.

Our interpretation of these results is that the cost-of-living crisis has left a significant number of Northern Ireland consumers in financial difficulty. While this is most prevalent among those on lower incomes, it also includes a cohort of consumers who would traditionally have been described as comfortable but who had little spare financial capacity because of significant committed outgoings.

The Northern Ireland Credit Union Consumer Sentiment Survey is a monthly survey of a representative sample of 350 adults. Core Research undertake the survey administration and data collection for the survey. The survey was live between the 3rd and 15th May 2024.