PwC Consumer Sentiment Survey - Summer 2023

Confidence continues in the right direction

Consumer sentiment continues to trend in the right direction, even in the face of stubborn inflationary pressures and interest rate rises.

Since last September, our Consumer Sentiment Index has consecutively improved by over 30 points, from a low of -44. Since then, things have been increasingly positive even with the financial pressure customers have faced. In January, our Retail Outlook showed consumer sentiment beginning to trend in the right direction, improving slightly to -32. Our last survey, taken just after the Spring Budget, saw sentiment climb again, to -25.

Now at -13, it’s at its highest point in 18 months. Everything is trending in the right direction, and it could even be argued that sentiment is almost back to normal: traditionally UK consumer sentiment is slightly pessimistic.

We’ve seen improvement across all demographics, with the variance between age groups closing and less-affluent socioeconomic groups also catching up, driven by the increase in National Living Wage and benefits. Consumer financial situations across the board have seemingly stabilised, with a marginal improvement in consumers with healthy finances.

Despite wider economic challenges and worries continuing, consumers are looking to cut back less, with certain sections of the public doing better than others. In positive news, most consumers are making ends meet, with only one in ten telling us they are either struggling, down from 13% in Autumn last year.

Inflation remains the single biggest factor affecting spending intentions, impacting 4 in 5 of us, with interest rates, house prices and rent rises only affecting a minority of people despite significant media coverage. Although it remains stubborn, there’s optimism that things will start to feel better for many if it tapers away over the rest of the year - something it is beginning to show signs of.

Improved sentiment across all demographics

The significant polarisation between age and socio-economic groups in the last few surveys appears to be slowing. Previously sentiment had been improving fastest among under 25s and over 65s, with 25-34 year olds and those in the poorest socio-economic group declining. We’re now seeing the gap that had opened up during the cost-of-living crisis between young and old and between rich and poor easing.

This time, every single age group and socio-economic group has seen an improvement in sentiment.

The variance across the age bands had narrowed slightly, and we’ve seen big improvements in less-affluent segments and working-age adults. This trend is largely driven by National Living Wage and benefits increases in April, and particularly the government’s decision to tie benefits to inflation. That appears to have helped many working-age individuals and especially the benefit-dependent, with many seeing a material improvement in their disposable income.

Under 25s remain the most positive age group (at+21), with 45-to-54 the least positive (-33). The sentiment of 35-44 year olds and 55-64 year olds have increased the most since our last survey, both by 17 points, but all working-age groups have seen significant improvements. Those under 35 are still net positive, largely driven by more younger people living at home, having more disposable income and a desire to spend.

From a socio-economic perspective, the least affluent have seen the largest rise in sentiment, but remain the most pessimistic about their finances. Unsurprisingly, the most affluent are still the most positive and are now net positive (at +1) for the first time in almost two years.

PwC Consumer Sentiment Index 2019-2023

Balance of opinion by age group

Balance of opinion by socio-economic group

Household finances stabilised, with slight improvements

Our previous survey suggested financial situations might be stabilising; this latest survey confirms it. Despite press coverage to the contrary, it appears most people are making ends meet, even if it’s just.

Finances have remained broadly similar to the previous two surveys, but continue to be an improvement on Autumn last year. In positive news, we’ve seen a slight decrease from Spring in consumers that say they are either ‘in trouble’ or ‘struggling and might miss bills’ (from 10% to 8%), while nearly a third believe their finances are ‘healthy’ (up 2% from Spring).

Mirroring the trend from previous surveys, the less affluent and 35-54 year olds remain under the greatest pressure, with retirees and the more affluent seeing the most healthy finances. Over 65s are particularly healthy, with almost half of them having money at the end of the month for luxuries or to save. Less than one in 20 pensioners tell us they are struggling.

The only group where we see more people struggling than in a healthy situation now is the benefit-dependent category (socioeconomic group E), but even this has been an improvement since March.

Overall, these should be considered positive findings. Similar research from other consultancies also suggests that compared with other EU countries, more UK consumers have ‘healthy’ finances with money left for luxuries or savings.

“Which of these statements most closely describes your financial situation at the moment?”

By age group

By socio-economic group

Inflation is the critical factor impacting spending

The number one thing that is forcing people to change their spending habits is inflation. Its impact is universal across all age groups, still affecting spending intentions for 4 in 5 consumers.

Away from inflation, there’s a big divergence between younger people and retirees. While the effect of higher interest rates, mortgages and rents are making headlines, it appears to be predominantly affecting younger age groups significantly more - the impact isn’t being felt by the majority of over 45 year olds. Over 65s in particular are largely unaffected by any of the other issues.

Encouragingly, we’ve seen improvements in every category since December, suggesting that people are beginning to revert to normal spending patterns. If this remains the case, and as stubborn inflation begins to slow, with pay and national living wage forecast to increase faster than inflation towards the end of the year, we should see disposable incomes starting to rise in real terms.

Factors impacting consumer spend in 2023, Dec 2022 and Jun 2023

What impact, if any, will the following factors have on how much you will spend this year (e.g. on food, clothing, travel)?

What does this mean for spending?

Looking forward at spending habits and finances, things are starting to look more positive than last year. While people are still looking to cut back in some areas, there are signs that spending intention is recovering.

Continuing a trend from recent surveys, the financial stability is reflected in fewer consumers expecting to cut back in the next three months. Compared with June last, there has been a reduction across nearly every category, further suggesting that finances have stabilised. Even more encouragingly, nearly a third of consumers now tell us they will not cut back their spending at all (compared to one in five this time last year).

A significant decline in driving less and energy consumption are two notable trends here, reflecting both relatively lower prices and a return to financial stability. While those looking to reduce energy bills remain high, driving less is the biggest decline across all categories as predicted in our last survey.

Although the intention to cut back has fallen across all age and socio-economic groups, it’s most pronounced in the over 65s, where 40% now don’t expect to cut back at all. Interestingly, for socio-economic groups, it is no longer the most affluent who will look to cut back spending the least.

Spending cutbacks intention by category, Jun 2022 to Jun 2023

“Over the past three months, have you had to cut back your spending in any of the following ways?”

What does that mean for categories?

As with the last few surveys, spending intention is still negative in every category except grocery - i.e. more consumers expect to spend less on these categories in the next 12 months than spend more. This time round, however, there has been a subtle change in priorities, with health, holidays, home and hobbies more protected than other discretionary categories.

There is also a material improvement in every category compared with June last year.

Consumer spending intention by category, June 2023

“How do you expect your spending to change in the next 12 months?”

The real interest in categories this time around, however, is less in the overall picture and more in the age groups.

The over 65s spending intentions are very closely matched to the national average, but with a few diversions. They expect to spend more on grocery shopping than others, largely because grocery shopping is a bigger part of their overall spending overall, and slightly more than the average on eating out and leisure. By far the most negative spending intentions are among the 45-64 year old groups, and under 25s have a completely different set of priorities.

Understandably, they have less interest in pets and children, because most won’t have either, but are net positive on health and beauty and neutral for clothing. It is an interesting resilient group that is somewhat sheltered from economic headwinds because a majority will be living at home or don't have to worry about mortgages and bills.

Consumer spending intention by category, June 2023

Net spending intention over next 12 months - by selcted age group

Overall, a positive indication?

While there are still some challenges hanging around - such as stubborn inflation and a slightly dampened spending intention for leisure - the results are generally encouraging. Despite much of the doom and gloom surrounding the industry, we’re generally back to normal levels of consumer confidence.

Sentiment has stabilised, and should inflation finally begin to fall away, we could expect to see increasingly positive intentions later in the year.

Lived experience suggests many have seen pay rises, energy and petrol prices are coming, and while food inflation remains high it is starting to come down from its peak. Ultimately, the most important factor is that people have just a little more cash in their pockets.

Now is the time for consumer businesses to take action.

Seek out ways to find value and investment

With consumers still trading down, cutting back, and changing how and where they shop and costs still rising, distress remains likely for some. But where there is distress, there will be opportunities to acquire good brands.

Businesses must be prepared for this, protecting and delivering value, identifying new opportunities, and using technology to realise deal and investment success. Our Global M&A Trends in Consumer Markets: 2023 Outlook suggests strong retail and consumer markets investment activity, so there will be opportunities for those willing to be bold.

Capitalise on consumer trends and rethink channels

Certain groups now have money left at the end of the month to spend and whilst others look to trade down they also want selective treats or “splurging” and it is as much about trading down in the same store as trading out. Businesses must look to locate these groups - and demographics - and encourage them to spend; but responsibly. And they must be aware of the polarisation by age group that’s starting to emerge. The very oldest, in particular, have savings and pensions protecting them from the cost-of-living crisis, with few having overheads such as mortgages and rent. Similarly, the under 25s, who are yet to be burdened by rents and mortgages, are a resilient group with money to spend, and different spending intentions to others. Conversely, those of working age with families are most likely to be deprioritising discretionary spending - can consumer markets businesses help them trade down and economise?

Some businesses may look to engineer more effective customer propositions and operating models, as well as manage cash flow, to manage future shocks. Others can look to rethink hybrid business models to acquire new customers and manage existing ones, whether that’s through marketplaces, social commerce, or resale platforms. Elsewhere, they may look to rebalance marketing and sales channels to engage with more consumers.