PwC Consumer Sentiment Survey - Autumn 2024

Fall in sentiment despite improving economic indicators

Consumer sentiment has fallen to its lowest level in 2024, seeing the biggest quarterly decline since Spring 2022. Sentiment has now dropped from zero just after July’s general election, to -8 in late September. On the face of it, this paints a worrying picture for retailers poised for the Golden Quarter as sentiment has historically been a reliable predictor of future consumer spending patterns. Yet, sentiment remains higher than this time last year (-13), so perhaps there is reason to believe Christmas results could turn out to be an improvement on the 2023 season.

Interestingly, economic indicators have continued to look favourable for consumers, with inflation stable, real wages increasing and more interest rate cuts likely. Actual household finances have only deteriorated slightly, with a small increase in the number of planned spending cutbacks​ in the short-term. So what’s driving the drop in sentiment? It is likely that perceptions are being skewed by uncertainty around potential tax rises and benefit cuts, as well as wider political and geopolitical concerns. The upcoming Budget may well be a watershed moment for consumer confidence in the months ahead.

Biggest drops in sentiment tally with tax and benefit fears

Declines in sentiment are most noticeable across two key demographics: the over 65s and the least affluent socioeconomic group. This tallies with concerns around changes to benefits and taxes.

In fact, the over 65s are the least optimistic age group for the first time since 2016, seeing the biggest decline across all ages when compared to last quarter’s data, down 19 points from -7 in the summer to -26, far below the UK average. Pensioners were historically the least optimistic demographic when we first started measuring consumer sentiment over 15 years ago, with many heading into retirement and dependent on the state pension. However, successive government policies starting with the introduction of the triple lock state pension in 2011, have seen the sentiment of over 65s leapfrogging 55-64 year olds over the past eight years.

Conversely, sentiment has risen among younger generations, bucking the wider national trend: increasing by 6 points to 38 for under 25 year olds, and by 1 point to 26 for 25-34 year olds. We would normally expect the sentiment of younger people to rise at this time of year, as it coincides with many entering new jobs or progressing through education or employment, although interestingly this was not the case last year, when sentiment of under 35s fell in contrast to older adults. Despite wider political uncertainties, younger adults have been the biggest beneficiaries of the National Insurance cuts and real wage growth to date this year.

Consumer Sentiment Index by age group, 2019-24

The gap between the most and least affluent groups is also showing signs of widening once again, another reversal of the trend earlier this year which saw the gap narrow, as the national living wage, state pension and benefits increased faster than inflation​. While consumers at both ends of the socioeconomic spectrum have seen drops in sentiment, it has fallen far quicker amongst those receiving benefits, including retirees dependent on the state pension​.

This fall in sentiment is also reflected in household finances. Over the last quarter, finances have worsened slightly, but most noticeably among older consumers and those on benefits​. However, while those aged 65 and over have seen a drop in ‘healthy finances’ they remain above the UK average. And despite this quarterly decline, household finances are in better shape across the board compared with this time last year, another glimmer of positive news for retailers for the months ahead.

Household financial situation by age group, September 2024

More cutbacks planned across the board in the short term

Almost three quarters (72%) of consumers are expecting to reduce spending in the next three months. Despite higher sentiment, falling inflation, and real wage and benefit increases, attitudes towards cutbacks have been stubbornly static over the last 18 months, reflecting wider spending caution amongst consumers.

While the proportion of consumers planning short-term spending cutbacks hasn’t increased, the average number of cutbacks planned per person has. But this incremental tightening across multiple areas has the potential to hit a wide range of retail and leisure categories in the run-up to Christmas. For example, an increase in the proportion of consumers who say they’ll buy less, trade down to cheaper items, and eat out or buy takeaways less frequently has reversed the trend of the past year. In fact the only area of discretionary spending that has been consistently protected has been holidays, which continue to be non-negotiable, typically funded by savings in other areas.

Spending cutbacks intention by category

Spending intentions may give some cause for optimism into 2025

Interestingly, despite falls in sentiment and an increase in immediate cut backs, this has not yet impacted spending intentions for consumers looking further ahead over the next 12 months. Category spending intentions for the year ahead are almost identical to three months ago, which also represents a material improvement across every category since last autumn.

Change in category spending intentions in the next 12 month

However, this finding should be read with caution. The majority of categories are in negative territory, with more shoppers expecting to spend less than spend more over the next 12 months, particularly in discretionary spending categories such as high street hospitality and leisure, and fashion and big ticket purchases.

This has been reflected in equally lacklustre trading performance. According to the BRC, quarterly non-food retail sales have been in decline every month since July 2023. Fashion and bigger-ticket items have been particularly hard hit, not helped by unseasonal weather patterns. Meanwhile, like-for-like chain hospitality sales have seen year-on-year declines in volumes and visits once accounting for inflation.

The warning lights will be on for some operators: retail and hospitality were once again among the sectors hardest hit by insolvencies according to Q2 2024 data. While there was some respite in the latest retail sales data, this was helped by weak trading performance last September. And any improvements remain unbalanced, with uneven performance from one sector of retail to another.

Despite falling food inflation and some short-term weakness in grocery sales at the end of summer, 38% of consumers are expecting to spend more at the supermarket over the next 12 months. In fact, compared to last September, when food inflation was over 12%, the number of people expecting to spend more on groceries is up by almost a quarter. Buoyed by the broader trend of consumers looking to cut back on eating out, grocery retailers have doubled down on ranges of high quality, premium meals, often marketed as a cheaper alternative to restaurants in a bid to fill the gap.

There is some good news though. Younger people are looking to spend more across a number of categories, particularly those under 25, but also - to a lesser extent - 25-34 year olds. When it comes to fashion, health and beauty, going out and holidays, the highest - and only net positive - spending intention is found in the 18-24 age group. Ahead of Christmas, retail and hospitality operators should think carefully about how they can capitalise on increased spending power among these age demographics, particularly given that these are the only groups seeing an increase in sentiment.

Net spending intention by age group, September 2024

Lower sentiment hits Christmas spending plans

More people now expect to spend less on Christmas shopping and celebrations, compared with when we asked them in July. And it’s no better than last September. It appears the sudden drop in sentiment has pulled through to expected Christmas expenditure, although, as we have seen in previous years, consumers typically always spend more than they predict.

Planned spending on Christmas shopping and celebrations, 2023-24

On average, 27% of shoppers are expecting to spend less this Christmas when compared to last year and only 18% expect to spend more. It’s not all bad news though. A huge 44% of 18-24 year olds expect to spend more this Christmas than last, along with 36% of the most affluent consumers. Of those expecting to up their spend, 30% said they’d saved up throughout the year and a similar number (28%) felt more confident about their personal finances.

Festive spending has already begun, with one in four consumers admitting they’d already started Christmas shopping by late September, and many more plan to start earlier this year compared to last. This is likely down to budgeting, allowing households to spread the cost of Christmas across multiple paydays. With the increased popularity of more online discounter days, shoppers are also being lured to get the best deals ahead of the Christmas rush.

While many are starting Christmas shopping earlier this year, the reasons why they’re spending less are largely unchanged from last year. The number one reason for spending less is the rising cost of living, with almost three quarters (72%) citing this reason. This is despite recent falls in inflation, illustrating the cumulative impact of inflation over past few years on Christmas spending intentions.

Interestingly, this year 18% of shoppers indicated concerns around higher taxes and lower benefits as a reason why they’re likely to curb Christmas spending, further highlighting the political environment and its impact on sentiment.

Remember though, this is what people are saying now. As in previous years, often consumers spend more than they anticipate at Christmas, and longer-term spending intentions across individual categories are higher than the run up to the festive season in 2023. Given the importance that consumers place on ‘keeping Christmas special’, it could well be that the short-term cutbacks we identified earlier are sacrifices that consumers are willing to make in order to do just that.

Trading for the Golden Quarter still in the balance

On the surface, a fall in sentiment will be worrying for retailers and leisure operators ahead of the most important trading quarter of the year. But it’s important to remember that sentiment is still better than last autumn, and household finances look resilient.

Crucially, spending intentions for the year ahead have not yet been impacted by falls to overall sentiment, and macroeconomic indicators remain strong. The uncertainty of the upcoming government budget is weighing heavy for some, with those vulnerable to benefit cuts and tax rises in particular seeing sentiment dampened.

The biggest concern for retailers and leisure operators is the combination of lacklustre spending intentions and an increase in planned short-term cutbacks. This will be disappointing for many ahead of the Golden Quarter, particularly in discretionary and big ticket categories, which are more vulnerable to declining confidence.

Although sentiment has fallen, there are indicators that this Christmas could be better than last year, particularly when we look back at generally weak trading comparatives from 2023 and 2022. Once the wider political landscape settles, consumers will feel clearer on how much they can spend, and how much to pull back. However, with purse strings being held tightly for yet another year, it’s clear that operators will need to continue to compete for every pound of spending.