Consumer confidence has soared to its highest level in two years, according to Deloitte’s latest consumer confidence index. This surge is fueled by a notable improvement in sentiment, particularly among younger demographics, indicating a promising shift in the economic landscape.
The index reveals a significant uptick of 6.5 percentage points in consumer confidence compared to the previous year. This boost is primarily attributed to a remarkable improvement in sentiment regarding household disposable income, which saw an impressive 18.2 percentage point increase from the first quarter of 2023. Additionally, consumers are exhibiting more positive attitudes towards their debt levels, with a 5.2 percentage point yearly rise in sentiment.
Younger individuals, in particular, are displaying heightened confidence in their personal finances. The most substantial quarterly improvement in sentiment towards disposable income was observed among 25–34-year-olds, with an 8 percentage point increase. This demographic has shown a remarkable 37 percentage point surge in sentiment towards household disposable income compared to the previous year, highlighting a double-fold increase over the overall average.
Moreover, consumers aged 18-24 and 25-34 are notably more confident in their debt levels compared to a year ago, with respective improvements of 17 and 15 percentage points, outstripping the 5 percentage point overall increase.
However, despite the overall improvement in consumer confidence, the first quarter of the year witnessed a customary decline in expenditure post-Christmas. Discretionary spending fell by 3.2 percentage points, while spending on essentials, such as utility bills and groceries, also slowed. Yet, compared to the previous year, spending remains on a positive trajectory, with essential spending up by 0.5 percentage points and discretionary spending by 5.5 percentage points.
Céline Fenech, Consumer Insight Lead at Deloitte, expressed encouragement at the growing confidence, especially among younger consumers. She noted that while consumers are benefiting from reduced costs in essentials due to falling inflation, spending on non-essential items has declined. Fenech emphasized the need for cautious optimism, as increasing confidence has yet to significantly boost spending.
Despite the overall improvement, sentiment towards the UK economy saw a slight decline in the first quarter, though remaining higher than the previous year. Additionally, consumer confidence in job security and opportunities dipped amidst a softer labor market.
However, amidst these shifts, business leaders’ optimism, as reflected by CFOs at major UK firms, continues to rise for the third consecutive quarter. Nevertheless, cost reduction remains a key priority for over half of finance leaders.
Ian Stewart, Chief Economist at Deloitte, highlighted the recovery of consumer confidence from the impact of inflation surges in recent years. Stewart noted the offsetting effect of rising real incomes, falling inflation, and lower mortgage rates on consumer sentiment, signaling an economy on the mend.
In conclusion, the surge in consumer confidence, particularly among younger demographics, paints a positive outlook for the economy. However, cautious optimism is warranted as challenges persist, and the full extent of consumer spending’s rebound remains to be seen.
