The latest Deloitte Consumer Tracker shows UK consumer confidence rose to -9.5 % in Q2 2024, its highest level in three years, taking the index above its long-term average for the first time since Q3 2021. This represents the confidence index’s seventh consecutive quarter of upward trend and points to consumers continuing to feel more positive about their financial circumstances. Real income growth has strengthened with official data showing wage growth firmly running above the rate of inflation, which is now back on target. These improving economic conditions, combined with consumer sentiment on the state of the economy at its highest since before the pandemic, are the reasons why consumers are finally loosening their purse strings and spending more on non-essential items. According to the Tracker, the sentiment measure for discretionary spending rose in Q2 to levels last seen in Q3 2021, before the recent inflationary period. More seasonal weather combined with a summer of sports and cultural events in the UK and abroad should also translate into an increase in spending. Our survey shows that one in two consumers plan to attend or watch a cultural or sporting event this summer, including some saying they expect some additional spending as a result. 

Such encouraging signs of economic turnaround will bode well for the new government. If we go by what happened to our index after the last election in December 2019 consumer confidence should continue to grow in the months following the July election, barring any new developments on the economic or geopolitical fronts. In addition, the prospects of a cut in interest rates expected by the end of the year could be further good news for borrowers and should support the bigger ticket item categories, meaning we should expect the recovery for spending on non-essential items to continue for some time. 

Key takeaways for Q2 2024

• Since reaching an all-time low in Q3 2022 the Deloitte Consumer Confidence Index has risen by over ten percentage points to -9.5% in Q2 2024. As a result, confidence is back to levels last seen before the latest wave of high inflation.
• The rise in overall confidence was driven by quarter-on-quarter improvements in five out of six measures of confidence included in the index.
• With falling inflation bolstering consumer finances and wage growth outstripping inflation, consumer sentiment in levels in disposable incomes continued to improve in Q2. Our data shows that consumers were less pessimistic about their levels of disposable incomes (+4 percentage points).
• With the UK bouncing back from a technical recession in the second half of 2024, the consumer’s view on the state of the UK economy is now back to levels last seen before the pandemic, improving by over 13 percentage points compared with Q1 2023.
• With the labour market remaining tight by historical standards, sentiment about job security improved two percentage points to -3.1% representing one of its highest readings since the Tracker began in 2011.
• In Q2 2024 overall net spending on non-essential goods and services fell marginally partly thanks to easing inflationary pressures especially on food and energy costs. At the same time, net spending on non-essential goods and services rose by four percentage points. A rise in discretionary spending is to be expected in Q2 as it coincides with a period characterised by higher levels of socialising as the weather improves.
• The start of summer this year has also coincided with a series of sporting and cultural events in the UK and abroad. Over one in two consumers surveyed (58%) said they intend to attend or watch a cultural or sporting event this summer. Of those one in ten expect to incur spending that will be in addition to their typical household expenditure.
• However, despite their finances improving consumers are prudent with their money. In Q2 2024, our data indicates that consumers remain frugal including trading down by buying cheaper brands or supermarkets own brands, buying goods on discounts, sale or promotion, buying groceries from cheaper supermarkets or making use of loyalty schemes or cards and coupons to save money.
• A new government, combined with consumer confidence at its highest in three years, should lead to a brighter outlook for the consumer economy in the months ahead. With the Bank of England expecting to cut rates by the end of the year, consumer spending should see a further boost later in the year.
  

Cost reduction remains a big focus area and solutions to reduce cost, and increase productivity are key

Business leaders will remain focussed on controlling costs and building up cash. Expansionary strategies, such as capital spending and bringing in new products or services are more likely to be on the backburner. Some cost pressures on businesses persist, including the increase in the National Living Wage and non-domestic energy prices. In addition, there is always a risk that inflation could rise again with both the cost of energy and commodity prices remaining volatile.

Outlook for Q3 2024

Positive news since the start of 2024 including lower inflation, a reduction in national insurance, a 10% rise in the National Living Wage, UK house prices gradually rising and lower home energy costs have been the driving forces behind growing consumer confidence. After, a difficult few years for the UK economy, and for the consumer sector in particular, the recovery is finally in sight but remains fragile. A new government, combined with consumer confidence at its highest in three years, should lead to a brighter outlook for the consumer economy in the months ahead. With the Bank of England pointing to a possible interest cut by the end of the year, consumer spending should see a further boost later in the year.