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%) remained significantly below where it was in Q1 2021 (-10.3%) 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.”
Non-essential spending on the rise
Improved confidence also translated into increased spending on non-essential items in Q2 2024, with discretionary spending up 3.8 percentage points. With consumers feeling more positive about their personal finances, spending on holidays and hotels (+7.7), restaurants (+3.6), clothing and footwear (+8.5), and going out (+3.6) all increased over the quarter.
Of those consumers who reported spending more in Q2, 19% said this was due to buying more items and activities than usual (up from 15% in Q1). More than half (58%) of consumers said they expect to attend or watch a cultural or sporting event in the next three months. Of those, one in ten expect to spend more because of this.
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.”
Sentiment towards the economy improves to pre-pandemic levels
With the economy recovering following a technical recession, consumer confidence about the state of the UK economy returned to levels last seen before the pandemic, improving by 13.6 percentage points compared with the previous quarter.
A tight labour market and strong wage growth saw sentiment about job security improve two percentage points to -3.1%, representing one of its highest readings since the Tracker began in 2011. At the same time, the measure of confidence in job opportunities and career progression gained one percentage point to -3.9%.
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% 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”.
