The latest data shows that UK consumer confidence remains close to its highest level in five years with confidence at -8.1% for Q4 2024.
While our survey does not report actual spending in value terms, asking consumers whether they have spent more, the same or less for different product and service categories enables us to track their mood. Through asking why, we can also understand whether consumers are buying more, paying more or a combination of both.
Consumers’ net spending on day-to-day categories was up in Q4, rising for the first time since Q1 2024. As would be expected at this time of year, consumers spent more on utility bills and on food up by 23 and 10.9 percentage points, respectively. In a sign that pressure on budgets remains a reality for many consumers, when asked about their expenditure during the festive period compared with 2023, more than two in five consumers (44%) said they had less money to spend and more than one in two (54%) indicated that they spent more because of higher prices. However, our data also shows that the rate at which consumers adopt more defensive shopping behaviours, such as buying goods on promotions, making use of loyalty scheme to save or buying cheaper brands, slowed in Q4 compared with last year.
The results for overall net spending on discretionary goods and services show a rise for the third consecutive quarter in Q4 as consumers spent more on gifts and socialising for the festive period. Spending increased in categories such as alcoholic beverages (+9.8 percentage points), going out (+2.5 percentage points) and clothing and footwear (+1.6 percentage points). The improvement could signal the start of a bounce back in consumer demand in the non-essential categories after high levels of inflation between 2021 and 2023 that drove consumers to cut their discretionary spending to cope. Consumers reported spending more on major household appliances (+4.3 percentage points), electrical equipment (+4.6 percentage points) and furniture and homeware (+2.8 percentage points) as they improved their home ahead of Christmas. While we account for spending on personal care and beauty as part of our overall essential spending category, it could be considered a more discretionary expenditure. There was a significant uplift in the spending on personal care and beauty in Q4 as people treated themselves or others for Christmas. This is also the sign of a growing health and wellness trend. Thanks to the increasing popularity of social media influencers and artificial intelligence (AI) tools many consumers are discovering new beauty routines and products that are better tailored to their specific needs. According to our research, nearly one in five consumers (18%) said they have used AI tools as a source of information when choosing what product or service to buy.
However, demand for discretionary goods remains slow as seen by the weaker economic performance in the second half of 2024. Consumers have remained prudent, saving their money rather than spending it on bigger ticket items except for services. Consumers are not only still adjusting to higher prices, they are also continuing to prioritise experiences over goods.
According to our Tracker data, consumers expect to spend more overall on day-to-day categories in Q1 driven mainly by expectations of higher utility bills but anticipate spending less on groceries after spending more at supermarkets for Christmas. Consumers also plan to reduce their spending on less-essential items in Q1 2025 such as clothing and as well as categories related to socialising with consumers expecting to avoid bars and restaurants following festive period celebrations. The only exception remains the travel sector as sun-seeking consumers book last minute winter holidays or book ahead for their annual summer trip abroad. The consumer recovery this year will depend on how inflationary the environment becomes and how manageable higher prices are for consumers especially in the more essential categories like food and energy. As a result, consumer demand could remain subdued in the first half of this year. However, in the second half, demand should improve especially in the more discretionary categories, supported by the rise in the minimum living wage, easing monetary and fiscal policies, and a recovery in consumer confidence.
For the last few years, with high input costs, consumer products companies had been focused on controlling costs but also on increasing prices to maintain profitably. While the ability to raise prices started to decline last year, consumers largely continued to spend. However, as seen in the weak official household expenditure data, consumers are still hesitant to spend more. Even with the rate of inflation slowing, they cannot help comparing today’s higher prices with those before the pandemic. Research carried out for our 2025 Deloitte Consumer Products Outlook, shows that given the challenges around raising prices companies will need to find other ways to pursue growth. Analysis of the top business performers highlights differences with other companies in the sector in three areas: investing more in managing their product portfolio and mix to entice the consumer, investing in a broader set of capabilities to stimulate demand and funding those investments by simplifying their business operations and finding new efficiencies, especially through digitisation and automation.