Consumer confidence rose by a few points, reflecting sentiment towards household disposable income, and is returning to levels last seen before the most recent period of high inflation.
According to a recent report by Deloitte, consumer confidence grew by 6.8 percentage points year-on-year, boosted by a significant improvement in sentiment towards household disposable income (up +16.7 percentage points compared to the same period a year ago) as inflationary pressures eased. However, the net sentiment towards disposable income (-23.1 per cent) remained significantly below where it was in Q1 2021 (-10.3 per cent) when consumers emerged from the pandemic with record levels of savings.
Of the six markers of confidence in the Tracker, only sentiment towards levels of debt declined in the second quarter of 2024, falling 1.5 percentage points. This signals ongoing caution amongst consumers, who have felt the effects of high interest rates and the cost of credit, albeit sentiment on debt levels improved year-on-year (+5.7 percentage points).
Céline Fenech, consumer insight lead at Deloitte, said, “Consumer confidence has turned a corner, with confidence rising above its long-term average and returning to levels last seen before the most recent period of high inflation. With consumers feeling better about their levels of disposable income and inflation back on target, consumers are seeing their purchasing power gradually improve and a boost in spending will likely follow.
“However, given the challenges of recent years it is perhaps unsurprising that, for all the good news, a degree of caution remains. It is hard to predict to what degree consumers will remain cautious, despite their finances improving, and whether they choose to replenish their savings rather than splurge. Even when they do spend, consumers continue to focus on value.”
Improved confidence also translated into increased spending on non-essential items in Q2 2024. Of those consumers who reported spending more in Q2, 19 per cent said this was due to buying more items and activities than usual. More than half (58 per cent) of consumers said they expect to attend or watch a cultural or sporting event in the next three months.
Meanwhile, as inflation continued to fall, especially the cost of everyday items and services, essential spending fell marginally by 0.4 percentage points. However, when looking at the long-term average, consumers continued to spend more on basics such as utility bills, groceries and everyday household items, than before the latest period of high inflation.
Fenech continued, “The second quarter of the year typically sees a boost to spending as seasonality encourages consumers to update wardrobes, spend more time outdoors and enjoy spring and early summer getaways. This year, even more so than last year, it is clear that many consumers are feeling more positive about their finances and feel in a better position to spend more on discretionary items and services.
"It appears that the consumers who are spending more are doing so because they are purchasing more, rather than due to higher prices, which is a positive sign of the start of a recovery.
“The summer coincides with many consumers looking to spend on experiences such as concerts and sporting events, which will hopefully provide an additional lift to the retail and hospitality sectors. Consumer confidence is at its highest in three years and in turn should lead to a brighter outlook for the consumer economy and spending in the months ahead.”
Ian Stewart, chief economist at Deloitte, added, “The UK economy is on a recovery path with activity coming back more quickly than had been expected. With inflation falling away and real incomes rising, consumers are feeling much more confident.
"Yet while the inflation rate has receded, the price level is 20 per cent higher than three years ago and this has acted as a drag on consumer spending. Nonetheless, much improved consumer sentiment and rising real incomes has set the stage for a pickup in consumer spending later this year”.
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