UK consumer confidence may keep rising but spending concerns remain

UK consumer confidence isn’t just on the up again, it’s reached a new two-year high amid improving personal finances, especially among the 25-34 year-olds. But that isn’t necessarily feeding through into people feeling better about spending.

That’s according to the latest Deloitte Consumer Tracker, which showed UK consumer confidence has increased for a sixth consecutive quarter (albeit by a slender 0.1%) to reach its highest level since Q3 2021.

What’s more, confidence is “markedly higher” than a year ago, up 6.5%, driven by significant  sentiment improvement  towards household disposable income (+18.2%), based on responses from 3,198 UK consumers aged 18+ (between 15-18 March).

This, paired with a 5.2 percentage point yearly increase in sentiment towards debt levels, “paints a much more positive picture of how consumers are feeling about their personal finances”, the report said.

The overall more positive mood of consumers is also reflected by that of business leaders as optimism among CFOs at the UK’s largest firms also rose for a third consecutive quarter. However, 56% of finance leaders rated reducing costs as a strong priority for the coming months.

Those optimistic younger people are feeling more positive about their personal finances than in Q1 2023, with a 37 percentage point improvement compared to a year ago, more than double the overall average. Disposable income was also 8% higher among 25 to 34-year-olds.

Consumers aged 18-24 and 25-34 are also feeling markedly more confident in their levels of debt compared to a year ago, with 17 and 15 percentage point improvements, respectively, in their sentiment. This is compared with a 5 percentage point improvement overall.

Although it said falling inflation is easing spending on essentials, on the downside discretionary spending is slowing with consumers “feeling less confident about their job security and career progression than last quarter”.

And despite confidence in personal finances is improving, the first quarter of the year has seen the usual post-Christmas cool-off in expenditure, with discretionary spending falling 3.2 percentage points.

However, spending remains at a net positive compared to last year, with essential spending up 0.5 percentage points and discretionary spending up 5.5 percentage points.

That’s even though the number of consumers feeling confident in their job security fell by 2.2 percentage points, following four consecutive quarters of improvement.

Céline Fenech, consumer insight lead at Deloitte, said: “It is encouraging to see that consumers are feeling more confident. However, spending on non-essential goods and services dropped this quarter, meaning that improving confidence is not yet translating to a significant boost to spending, and cautious optimism is required.

“There are some positive signs that consumers might be starting to loosen their purse strings, with more wriggle room for spending on discretionary items or services. We are seeing the rate at which consumers are increasing their defensive behaviours easing, for example fewer consumers buying goods on promotion or from cheaper supermarkets.”