The latest Deloitte Consumer Tracker shows that consumer confidence continues to improve and is moving closer to positive territory. Overall confidence is now four points higher than this time last year. While sentiment around disposable income has risen by 11 percentage points, consumers are less confident about their level of debt, a sign that they may be responding to the prospect of higher interest rates.
Net % of UK consumers who said that their level of confidence has improved over the past three months
Although consumers in London and the South East are the most confident, confidence in the North increased significantly this quarter, mainly driven by improving sentiment over job opportunities and disposable income. This suggests that the recovery is gathering pace across the country.
Discretionary spending continues to improve, most notably on clothing and footwear which rose by nine percentage points since Q1 2014. A combination of stiffer competition and strengthening sterling has helped to reduce prices and support sales volume growth.
Consumers are starting to edge away from some of their defensive purchasing behaviours adopted during the recession, with fewer consumers controlling impulse purchases and buying less. At the same time, the number of consumers buying more items is increasing.
While economists forecast a rise in real earnings over the next year, the Tracker indicates that consumers are less optimistic. Half of working UK adults do not expect their salaries to increase, and with the possible increase in interest rates expected, the key uncertainty for the consumer sector over the next year is whether gains in real incomes will be enough to offset the dampening effect of higher interest rates.