Consumer Confidence Reaches Five-Year High

UK consumer confidence rose 1.7 percentage points in the third quarter of 2024, according to the latest Deloitte Consumer Tracker, based on responses from 3,200 UK consumers aged 18+ between 6 and 8 September 2024. All six measures of the index improved in Q3 2024, marking the eighth consecutive quarter of improvement to consumer confidence, taking it to its highest level since before the pandemic.

Key Findings:

• Eight consecutive quarters of improved consumer sentiment mark highest level of confidence since Q2 2019;

• Sentiment towards children’s welfare and job opportunities provided biggest confidence boost;

• Consumer sentiment towards the state of the UK economy fell five percentage points on the previous quarter, but remains significantly improved year-on-year;

• Spending on discretionary items rose, reaching positive territory for the first time since Q3 2021.

The improvement is in part due to a significant increase in consumer sentiment towards children’s education and welfare, up five percentage points to its highest level since Q3 2016, following the introduction of the government’s free childcare offering.

Meanwhile, there was also a significant rise in sentiment towards job opportunities and career progression, which saw a two-percentage point increase to its highest level since the second quarter of 2019. At the same time, consumers are feeling slightly more positive about their job security, up 0.5 percentage points in Q3, as the labour market remains strong.

Céline Fenech, consumer insights lead at Deloitte, said: “Consumer confidence has rebounded to pre-pandemic levels, marking a significant milestone and reflecting an improving economic environment for consumers. This is driven in part by growing optimism about personal circumstances, bolstered by a strong labour market that instils confidence in job security and career opportunities.”

Consumers less confident about state of economy ahead of Autumn Budget

Consumer confidence towards the state of the UK economy dropped by five percentage points in Q3 2024 as consumers await the outcome of the upcoming Autumn Budget. However, this remains 20 percentage points higher than the same period a year ago.

Consumer sentiment around their level of debt improved marginally (+0.8) in Q3 following the first cut to interest rates in August. Consumers have also been focusing on paying off debts, with fewer consumers (18%) saying they saw an increase in their debts in the last three months compared to the previous quarter (21%).

Ian Stewart, chief economist at Deloitte, said: “The Bank’s interest rate decision in August was a significant moment, marking the first cut in four years. This, along with inflation now falling below the two percent target, and growth in real income, paints a more positive picture for a consumer sector which has been hit hard by high inflation and interest rates. While consumer sentiment about the economy edged lower this quarter, the overall mood is of cautious optimism among UK consumers.”

Summer of culture and sport prompts spending

Easing inflationary pressures led to day-to-day spending falling for the second consecutive quarter, down 2.4 percentage points on the previous quarter. Spending on grocery (-3.8), housing (-5.3) and transport (-4.3) have seen some of the biggest decreases, with inflation in those categories having eased significantly in the last year.

At the same time, spending on discretionary items rose by 1.9 percentage points in Q3, moving into positive territory for the first time since Q3 2021. The improvement was driven by strong growth in spending on holidays (+3.2), restaurants (+5.5), and clothing (+3.0), as consumers prioritised small treats and activities over the summer period. The data shows that spending across almost all leisure categories improved on the previous quarter, with particular boosts to eating out (+5.5), short holiday breaks (+4.7), and culture and entertainment (+4.1).

Of those consumers who indicated they spent more compared with the previous quarter, a higher proportion (22%) said this was because they bought more items and/or spent on more activities than usual (compared with 19% in Q2 2024). Meanwhile, of those who said they spent less in the last three months, fewer said it was because they were trying to save money by paying for fewer items and activities (45%) compared with last quarter (49%).

Fenech continued: “Signs that consumer spending is bouncing back are starting to emerge. Spending on non-essential goods and services is now in positive territory for the first time since Q3 2021 when consumers emerged from the pandemic. With many consumers enjoying socialising outdoors, updating their holiday wardrobes, plus a host of sporting and cultural events, it’s not surprising to see discretionary spending receive a much-needed boost."

“However, despite the economy returning to normal levels of growth, consumer demand remains weak, with the hangover from high inflation continuing to negatively impact purchasing power. Business sentiment is also lagging behind that of the consumer, with a higher proportion of UK CFOs rating the level of external financial and economic uncertainty facing their business as high or very high in Q3."

“Whether consumer sentiment improves, as well as the prospect for business trading this Christmas, will depend on what the Chancellor announces in the upcoming Budget, another Bank of England rate cut, and the strength of the jobs market.”