Confidence improves but more cost-of-living pressures predicted. By Ian Taylor
Outbound travel demand remains strong despite all the forecasts of a difficult year for consumers, with the outlook for the UK economy brightening considerably since we entered the January peak booking period.
However, not all the economic signals align one way, raising doubts as to how long the current market will remain as positive.
Latest forecasts from the largest travel firms support the case for continued growth. Tui UK launched its biggest-ever summer programme last week, adding at least 11 aircraft and 1.1 million seats for 2024, with managing director Andrew Flintham noting: “We’ll need a bigger Atol.”
Jet2 revised up the company’s profit forecast for the 12 months to March and noted seat capacity for this summer is 7.2% higher than last year, with “pricing for package holiday and flight-only products strong and margins encouraging”.
Yet the inflation rate in March defied expectations of a fall by remaining at 10.1%, making a further interest rate rise likely at the next Bank of England rate-setting meeting on May 11. The inflation rate will come down as the hike in energy prices a year ago falls out of the year-on-year comparison, but other factors – notably food prices – are now driving inflation.
Annual food price inflation hit 19.1% in March and ‘core’ inflation, excluding food and energy, remained unchanged at 6.2%.
So the signals remain conflicting and we must expect a lag between the economic data and any impact on consumer behaviour.
Consumer confidence, measured by the GfK confidence index, reached its highest in 14 months in April, rising six percentage points to -30. For comparison, the index was -13 in April 2019, but it’s still a significant improvement from -45 in January.
The pressure on lower‑income households is clear. But interest rate increases also hit ‘middle earners’, who account for a significant proportion of the outbound market, with 1.4 million UK households due to see fixed-rate mortgages end this year and another 1.7 million on tracker mortgages that mirror rising rates.
The National Institute of Economic and Social Research reports middle-earning households will see real incomes fall by 6.2% in 2023-24.
The Barclays UK Consumer Spending report for March noted “54% of consumers say they are cutting discretionary spend due to rising household bills”. Yet it found travel spending continued to rise. Spending with airlines was up 28.5% year on year and with travel agents up 30%.
At the same time, Office for National Statistics data for the first half of April showed 70% of UK adults reported a month-on-month increase in their cost of living and 67% reported lower non-essential spending.
Deloitte UK chief economist Ian Stewart summarised the outlook saying: “Things may be looking up, but they are hardly rosy. Most forecasters think UK activity will flatline or contract this year.”