UK consumers are feeling more positive moving into spring. The latest edition of the PwC Consumer Sentiment survey, conducted immediately after the Spring Budget, saw consumers feeling more optimistic about their spending power for the year ahead. The professional services firm has been tracking the mood of the nation since April 2008, capturing the highs and lows of how consumers feel at a given moment in time.
Sentiment, which sat at -44 in September 2022 and -32 at the beginning of January 2023, now sits at -25. Although still in negative territory, it is a marked improvement from last Autumn when the measurement was almost at a historic low – eclipsed only by the start of the Global Financial Crisis in October 2008, when it dipped to -51. Sentiment has now recovered to a whisker better than at the start of the first Covid lockdown (-26 in March 2020), and is also now better than the worst point of the austerity period in 2012 (-42). It’s also the first consecutive period of improved sentiment since early 2021.
The sentiment of under 25s has improved by 13 points (to +15) since the start of the year, ranking them as the most positive age group, and reflecting the fact that many young people still live at home, sheltering them from the worst effects of the cost of living crisis, and they are more likely to benefit from National Living Wage and salary increases. The sentiment of over 65s has increased the most since January, by 14 points to -31, partly driven by higher lockdown savings, little or no mortgage repayments, the pensions triple lock, and government cost of living assistance targeted at older age groups.
Despite rising inflation and the cost of living crisis, almost a third of consumers polled now believe their finances are ‘healthy’ with 90% stating they do not consider themselves to be struggling. One in ten consumers state they are in trouble, financially, or might miss a bill – down from 14% who felt the same last Autumn. The biggest improvement in finances is amongst the over 65s – 47% of that demographic now consider themselves ‘healthy’, leaving them with money left over for luxuries or savings every month. At the other end of the scale, 35-44 year olds and 45-54 year olds say they are under the most financial pressure, with 15% stating that they are struggling or in trouble.
This improved financial health is reflected in consumers’ spending intentions, with fewer people expecting to make spending cutbacks than six months ago: from 83% in Autumn to 78% in Spring. The biggest improvements were in the proportion of people planning to reduce home energy consumption (from 45% to 37%) or to drive less because of petrol prices (from 27% to 16%). However, retail and leisure spending remain vulnerable to spending cutbacks, with significant numbers of people still planning to eat out less (38%), order fewer takeaways and deliveries (33%), or trade down to a cheaper supermarket (30%) in the next three months.
At a category level, not surprisingly consumers say they will prioritise the non-discretionary categories of groceries, pet care and children’s products. In particular, grocery is the only category with a positive spending intention, i.e. where more consumers expect to spend more in the next 12 months than spend less, in part a result of the record food price inflation they have experienced in recent months. Even this is an improvement over last Autumn, when grocery spending intention was negative, suggesting that consumers were planning to buy less and trade down to cheaper alternatives.
The next most important categories to consumers are holidays, health, and the home, as consumers look to protect those spending categories that are most important to them – with health and wellbeing particularly important for younger people.
Under 25s are more likely to prioritise spending on fashion and going out than older age groups; at the other end of the age range, over 65s were more likely to prioritise eating out and going out than every age group other than the under 25s.
PwC leader of industry for consumer markets, Lisa Hooker, added: “It is encouraging to see how consumers are responding to the changing economic environment. Whilst sentiment is still negative, it is beginning to recover. It is interesting to see how those, particularly in the under 25 and over 65 category, want to spend again on “luxuries” like going out and spring fashion.
“I would encourage retailers to lean into this as the brighter weather will spark less concern with energy prices, especially as the Energy Price Guarantee has been extended. Time and time again, consumer sentiment continues to show me how resilient this sector is – both business and consumers have been savvy during the last 12 months. That innovative thinking has laid the foundation for what we hope will build more sector success in 2023.”