The latest Deloitte Consumer Tracker shows that UK consumer confidence remains close to its highest level in five years with confidence at -8.1% for Q4 2024 compared with -7.9 % in Q3 2024.
However, after recovering for two years, the lack of improvement in the overall index in Q4 points to consumers being nervous about the UK economy following the budget including how higher taxes on businesses might impact their income and prices at the till. Consumers’ view on the state of the economy in the UK dropped by 14 percentage points in Q4 compared with Q3. After rising and falling since Q1 2023, consumer sentiment on the economy had improved significantly in the summer of 2024, but has since been falling coinciding with some weakening UK GDP growth in the second half of last year.
The Deloitte consumer confidence index is an average of the net percentage improvement in the level of confidence in the past three months for six individual measures of confidence. In Q4 only two out of the six measures included in the index rose compared with the previous quarter. Two base rate cuts since the summer drove a significant six percentage point rise in sentiment towards levels of debt. There was also a marginal half-point rise in consumers’ view on their general health. These improvements were not enough to compensate for the fall in sentiment in the other four measures tracked in our survey. This included a close to four percentage point drop in confidence in household disposable income and a more marginal one percentage point fall in sentiment for both job security and job opportunities. As a result, the index was flat in the last quarter of 2024.
With consumer confidence close to its highest level in five years, consumers in our survey reported increased levels of spending in both essential and discretionary categories. The data shows net spending on discretionary goods and services rose for the third consecutive quarter in Q4 after moving into positive territory in the second half of 2024 for the first time since Q3 2021. This improvement is likely to be associated with the festive period with consumers spending more on gifts and socialising. It could also signal the start of a bounce back in consumer demand in the non-essential categories after high levels of inflation between 2021 and 2023 have driven consumers to cut their discretionary spending to cope with the higher costs of food and energy. Consumers’ net spending on day-to-day categories was also up in Q4, rising for the first time since Q1 2024. As would be expected at this time of year, consumers spent more on food and on utility bills. However, in a sign that pressure on budgets remains a reality for consumers, when asked about their expenditure at Christmas compared with 2023, two in five consumers (44%) said they had less money to spend and one in two (54%) agreed they spent more because of higher prices.
A once in a generation surge in costs between 2021 and 2023 has diminished consumers’ spending power. As a result, consumers continue to look for value and make compromises often favouring services over goods, and controlling their more expansionary shopping behaviours such as making impulse purchases while visiting stores on their high street and going back to online shopping to compare prices before purchasing. Our data shows that one in two consumers (52%) agree they have been generally more frugal and careful over the Christmas period and one in two (50%) say they have consciously cut down on any luxuries.
Overall, there is a lag between improving consumers’ finances and their propensity to spend more. It could be that consumers need more time to digest the volatility and uncertainty of the last few years. Despite strong real income growth over the last two years, consumers will want to see what happens next to the cost of financing their debts, their ability to save, the prices of essential items and their job security. Consumer demand could remain subdued while the economic environment hopefully settles in the first half of this year. Beyond that, the rise in the minimum living wage, more public spending, the continued easing of monetary and fiscal policies and consumer confidence hopefully continuing to recover, should see demand improving especially in the more discretionary categories.
Net % improvement in confidence in the last three months
Net % spending more in the last three months by category
Source: The Deloitte Consumer Tracker
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Net % improvement in confidence in the last three months
Source: The Deloitte Consumer Tracker
Net % spending more in the last three months by category
Source: The Deloitte Consumer Tracker
Net % spending more in the last three months by category
Source: The Deloitte Consumer Tracker
Net % spending more in the last three months by category
Source: The Deloitte Consumer Tracker