PwC: Consumer Sentiment At Highest Level In Three Years

• Consumer sentiment in the UK increased from -5 over Easter weekend to 0 in July post election - its highest score for three years

• Spending intentions across various categories have shown improvement with holidays, fashion, and grocery spending experiencing the strongest growth

• Household finances are the healthiest they have been for two years with more money for luxuries across all demographics

The latest PwC Consumer Sentiment Survey shows consumers are finally feeling more confident after three years of instability. The survey, conducted in July, in the immediate aftermath of the general election, highlights encouraging trends in confidence that will hopefully translate into pounds spent on the high street.

The survey, a key indicator of the propensity to spend over the following 6 to 12 months, has been running for over sixteen years. In September 2022 it hit a record low of 44 but has been slowly increasing over the last eighteen months. The latest survey shows that sentiment increased from -5 over Easter weekend to 0 the weekend after the general election. This improvement is above the long-run average and is seen across most demographics, excluding ABs and 35-44s. 

These positive developments have been felt across the board. Notably, lower socioeconomic groups and individuals aged 65 and above have seen the biggest improvements in confidence. Moreover, individuals aged 65 and above now exhibit the same level of optimism as those aged 35-44. Factors contributing to this improvement include lower inflation, wage and benefit increases, pension rises, and NI cuts. This uptick has meant an increase in the number of consumers reporting more money left over for luxuries or savings, up from 27% in September 2022 to 34% in the latest research.

This means the gap between the most and least affluent, which we saw widen in the past year - to its largest since we started measuring consumer sentiment - has begun to close.

What are consumers planning to spend on?

Spending on holidays, fashion and grocery have seen the biggest improvement, with 38% of consumers now planning to spend more on groceries, 21% on holidays and 13% on clothing, shoes and accessories.

Last minute holiday bookings for this summer have boomed, with more consumers waiting until closer to departure to finalise their plans. As a result, holidays have become the most important discretionary spending category in our July survey, eclipsing spending on health and wellbeing and home improvement.

Fashion retail sales volumes have been declining every month since last September 2023, not helped by an unseasonably warm autumn last year and the cooler and wetter spring this year. However, this survey has seen clothing leapfrog technology and big ticket items in relative importance for shoppers. Therefore a much-needed recovery for the fashion sector could be linked to consumers updating on their holiday wardrobes.

Many consumers also traded down in grocery shopping habits over the last three years. There are signs that this trend is now starting to reverse and could be a sign of consumers treating themselves more at home and trading nights out for nights in. 

44% of consumers have spending time with their friends and family as the activity they are most looking forward to for the rest of the year, so it is little wonder that holidays and grocery shopping spend is up. 

Despite the positive trends, consumers remain careful with their spending. The survey reveals that the same percentage of individuals (72%) are planning short-term cutbacks as last summer. More affluent groups, such as As and Bs, are equally likely to be cutting back on spending as less affluent groups, which will affect retail and leisure operators targeting consumers at both ends of the spectrum.

Looking ahead to the Golden Quarter

Preliminary surveys suggest a cautiously optimistic outlook for festive spending. In July, 20% of consumers indicated plans to spend more on Christmas shopping and celebrations with younger demographics particularly upbeat. Although this isn’t a substantial rise, it marks an improvement from last year's figures. Historically, spending intentions tend to grow more positive as Christmas approaches.

However, more people plan to travel abroad for the holidays, potentially reducing domestic spending on gifts. This aligns with a broader trend of prioritising holidays over other discretionary expenditure.

Lisa Hooker, Leader of Industry for Consumer Markets comments: 

“It is good to see the improvement in consumer sentiment this summer to the highest level in three years as this, together with more money in shoppers’ pockets from falling inflation and pay and benefit increases, means the outlook for spending should improve.  This will be a welcome relief for retailers after a challenging first six months of 2023. It also gives us more confidence for the all important Golden Quarter and Christmas periods particularly in categories that consumers are seeking to prioritise more such as fashion and groceries. 

“But it is not all plain sailing, we still need to be mindful of the engrained consumer 'cut back' mentality that has developed over the past few challenging years and prioritisation of experiences over material goods.  Further geopolitical or economic surprises can also impact unexpectedly. This means consumers will be selective about where they spend and where they cut back and so not all with benefit from this uptick”

“However, overall, we do think the reasons to be cheerful outweigh the reasons to be fearful.  Savvy retail and leisure operators could steal a march on their peers by engaging effectively with consumers to give them a reason to spend profitably and responsibly”.

Source : PwC

Image : AmbrosiniV / Shutterstock / 1783336670

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