UK consumer confidence continued to rise in Q2, up 1.5% quarter-on-quarter, and marking seven consecutive months of improving sentiment. Not only that, it’s now above the long-term average for the first time since Q3 2021, according to the latest in a line of positive readings from the new Deloitte Consumer Tracker.

Even better news is that consumer confidence in the state of the UK economy has improved by 13.6 percentage points on the previous quarter, notably returning to pre-pandemic levels

And importantly for retail, discretionary spending increased 3.8 percentage points from the previous quarter and, even more important, consumers’ attitude towards their disposable income has recovered significantly, up 16.7 percentage points compared to a year ago as inflationary pressures eased.
With consumers feeling more positive about their personal finances, spending on clothing and footwear rose 8.5% over the quarter.

However, let’s not get carried away. This must be measured against the fact that net sentiment towards disposable income (-23.1%) remained significantly below where it was in Q1 2021 (-10.3%) when consumers emerged from the pandemic with record levels of savings. 

The readings, based on responses from 3,200 UK consumers aged 18+ between 7-10 June, also show ongoing caution among consumers, who’ve felt the effects of high interest rates and the cost of credit, albeit sentiment on debt levels improved year-on-year (+5.7 percentage points).

Céline Fenech, consumer insight lead at Deloitte, said: “Consumer confidence has turned a corner, with confidence rising above its long-term average and returning to levels last seen before the most recent period of high inflation.

“With consumers feeling better about their levels of disposable income and inflation back on target, consumers are seeing their purchasing power gradually improve and a boost in spending will likely follow.”

But she added: “Given the challenges of recent years it is perhaps unsurprising that, for all the good news, a degree of caution remains. It is hard to predict to what degree consumers will remain cautious, despite their finances improving, and whether they choose to replenish their savings rather than splurge. Even when they do spend, consumers continue to focus on value.”

She also noted that the second quarter of the year “typically sees a boost to spending as seasonality encourages consumers to update wardrobes, spend more time outdoors and enjoy spring and early summer getaways.”

Ian Stewart, chief economist at Deloitte, also added: “The UK economy is on a recovery path with activity coming back more quickly than had been expected. With inflation falling away and real incomes rising, consumers are feeling much more confident. Yet while the inflation rate has receded, the price level is 20% higher than three years ago and this has acted as a drag on consumer spending. Nonetheless, much improved consumer sentiment and rising real incomes has set the stage for a pick-up in consumer spending later this year”.