The ‘vibecession’ arrives to the UK as consumer confidence falls despite improving economic factors

• Consumer sentiment drops to -8, the lowest level in 2024, with the most notable declines among those over 65 and the lowest socioeconomic groups

• Spending intentions across multiple categories have remained stable, with younger consumers showing much higher-than-average spending intention in fashion, beauty and going out

• Household finances have weakened slightly since the summer, and 72% of respondents planning to make short-term spending cutbacks

• Festive spending is vulnerable to weaker sentiment, with more people now saying they plan to spend less on Christmas presents and celebrations than those who say they’ll spend more

A sense of unease has gripped UK consumers, with PwC's latest Consumer Sentiment survey revealing a plunge in confidence. The index has dipped to -8, its lowest point this year and the biggest quarterly drop since Spring 2022. 

UK consumer sentiment is proving increasingly difficult to predict. After briefly reaching neutral in July for the first time in three years, PwC's research shows it fell to -8 when consumers across the UK were polled at the end of September. Despite this volatility, there's hope for retailers this Golden Quarter - the current sentiment, while negative, remains stronger than the -13 recorded this time last year, and the -44 recorded in September 2022.

Economic indicators have continued to look more favourable for consumers, with inflation falling below 2%, wages increasing in real terms and more interest rate cuts expected. Actual household finances have deteriorated only slightly, with a small increase in the number of spending cutbacks​ planned in the short-term. The variation between sentiment and economic reality reflects a similar sense noted originally in the US. There, they coined the term “vibecession", to describe a disconnect between positive economic data and negative consumer sentiment. The drop in confidence is likely fueled by anxieties surrounding potential tax hikes and benefit reductions, short term increases in energy and food price inflation, alongside broader political and geopolitical uncertainties. The upcoming Budget is poised to be a pivotal moment, potentially setting the tone for consumer confidence in the months to come. 

Demographics indicators

The survey reveals a growing polarisation in sentiment between demographic groups, reversing the narrowing trend from earlier in the year. Notably, over 65s, who have become the least optimistic age group for the first time since 2016 (with a 19 point decline in sentiment since July 2024), and those in the lowest socioeconomic group (with a 22 point decline) experienced the largest falls in sentiment this quarter.

Historically, consumer sentiment has been correlated with age, with younger people typically more optimistic as they enter the workforce and benefit from job progression and wage increases. This is particularly true for sentiment this Autumn, with 18-24 year olds (+6 points) and 25-34 year olds (+1 point) being the only age groups to have seen an improvement in sentiment since July.

Despite the drop in sentiment amongst retirees, this age group remains the one with the highest household financial security: 45% of over 65s say that their finances are “healthy”, meaning they have money left at the end of the month for luxuries or savings, and only a slight decline from 50% in July. This compares with 32% on average (a 2% decline since July), and just 21% of 35-44 year olds.

Category spending

Consumers are holding tight to their wallets, with spending intentions remaining largely unchanged from three months ago. 72% of respondents plan to cut back on spending in the short term. Outside of holidays which are more protected, hospitality and leisure spending are particularly vulnerable for budget-conscious consumers, with 34% saying they will cut back on eating out in the next three months, 30% saying they buy fewer takeaways or meal deliveries and 27% saying they will go out less.

Grocery spending remains the most resilient category, with premium products and brands outperforming as shoppers switch out of home spend to in the home and compensate by buying more premium ranges. Compared with the same period in 2023, net spending intention on groceries has increased by 24 points with 38% of consumers saying they intend to spend more on groceries in the next 12 months, compared with only 15% who say they will spend less. For every other spending category, more people say they will reduce spending in the next 12 months than say they will spend more, illustrating the challenge facing retail and leisure operators.

The only demographic group bucking the wider trend is the under 25s. In contrast to older adults, the youngest age group has a net positive spending intention on several discretionary categories, such as fashion, health & beauty, holidays and going out.

Festive spending

The decline in sentiment this quarter has adversely affected Christmas spending plans - with intentions deteriorating since July - and these are now no better than last September, despite the improving economic environment. Amongst adults, 18% say they plan to spend more on Christmas shopping and celebrations than last year (compared with 20% in July), while 27% say they plan to spend less this year (compared with just 21% in July).

Again younger people help drive up the average, reflecting their higher sentiment: 44% of 18-24 year olds and 32% of 25-34 year olds plan to spend more on Christmas. Shoppers in the Capital expect to be the most generous, with one in three Londoners saying they plan to spend more this festive season, compared with only 13% of those in the East of England. Those in the North East expect to tighten their belts the most, with 35% saying they will spend less.

Despite falling inflation, the cost of living is the most commonly cited reason amongst those who expect to spend less (72%), while 23% say it’s because they have fewer people to buy for, and 18% directly blame the impact of higher taxes or lower benefits.

Notably, one in four shoppers (and almost twice as many women as men) have already started their Christmas shopping, compared to one in five at the same time last September. A further 15% say that they haven’t started their shopping yet, although they do intend to start earlier this year than last. This suggests that more people are planning and budgeting in order to have the best festive season possible.

Lisa Hooker, Leader of Industry for Consumer Markets at PwC UK comments: 

"Being first recognised in the US, we are seeing the impact of ‘vibecession’ in the UK where, despite falling inflation and interest rates and consumers being better off, sentiment has started to fall again. Whether the starting point was the unrest  across the UK in early August, the unseasonably awful summer weather or a combination of several factors, the typical post-election honeymoon vanished quickly, to be replaced by trepidation, particularly about the upcoming budget.”  

“However, all is not lost for the important Golden Quarter and Christmas. Whilst positivity around spending money on Christmas has declined since summer, sentiment is still higher than last year and the younger consumers are more optimistic, prioritising areas like fashion, beauty, and social activities.”

“Shoppers are starting to prepare for Christmas early and want to make the holiday period special for their loved ones, benefiting areas such as food and drink, affordable home decorations and presents. We all hope that the government has an early Christmas present for us in the up and coming budget.”