UK consumer confidence improves as economic prospects darken

UK consumer confidence rose slightly in the third quarter of this year, but confidence in the state of the economy fell leaving consumers cautious on spending, according to research on behalf of Deloitte.

 

The Deloitte Consumer Tracker for the three months to September, released today, shows overall consumer confidence rose 0.4 percentage points to minus 10% after a significant fall in the previous quarter.

 

Sentiment on job security increased most sharply, rising by 1.2 percentage points in the quarter.

 

However, consumers’ confidence in their household disposable income fell by 0.5 percentage points to minus 28% and was down 5.7 percentage points year on year.

 

Confidence in the outlook for the UK economy also dropped, to a two-year low of minus 64% – a level last seen in summer 2023 when inflation was raging.

 

The survey found consumer spending declined in both the essential and discretionary categories as confidence in the state of the UK economy fell almost 13 percentage points on the previous quarter and by 26 points year on year.

 

The overall improvement in confidence despite this was driven by increases in four of the six measures which make up the Deloitte Consumer Tracker, based on a survey of 3,200 UK adults in the middle of last month.

 

Perception of job security improved by 1.2 points in the quarter and confidence in career progression by 0.4 points, although both remained four to five points down on a year ago.

 

Consumer sentiment on debt also improved, by 0.6 percentage points, as did respondents’ general sense of health and wellbeing which also rose by 0.6 points.

 

Deloitte UK consumer insight lead Céline Fenech said: “While it is encouraging to see an improvement in consumer confidence, the overall picture is varied with many sentiment markers scoring lower than the same time last year.

 

“However, there are signs that consumers are feeling more positive about their own circumstances.”

 

Consumer spending on discretionary items was down by 0.6 percentage points in the quarter and by 1.3 points year on year, with spending on holidays and hotels down by 2.6 percentage points.

 

That may be partly because spending on essentials was up 1.1 percentage points on a year ago, driven by increases in utility bills (up 6.5 points), groceries (up 5.6 points) and everyday household items (up 5.3 points).

 

The proportion of consumers reporting spending more due to rising prices rose two percentage points in the quarter to 75%.

 

Oliver Vernon-Harcourt, Deloitte UK head of retail, said: “It is understandable some consumers are feeling less optimistic about their levels of disposable income.”

 

He noted: “Consumers continue to adopt tactical spending behaviours, trading down or opting out of purchases all together.”

 

Deloitte UK chief economist Ian Stewart added: “Higher inflation and economic uncertainty are weighing on consumer sentiment. 

 

“An easing of inflation next year and further interest rate cuts offer the best prospects of reviving consumer spirits."

 

The survey was conducted by YouGov on behalf of Deloitte on September 12-14.