Consumers are increasingly confident that some of the pressures they felt at the start of the year will ease in the quarter ahead. When asked about their financial situation and spending plans for the next quarter, 39% of consumers say they expect their overall outgoings to go up and a third (32%) expect their day-to-day spending to increase compared with Q1 2023. In contrast, last quarter 50% of consumers expected an increase in their overall outgoings and 37% expected their day-to-day spending to go up.
Despite inflationary pressures easing, prices remain high and as a result we are seeing consumers continue to adapt their shopping behaviours after an extended squeeze on their finances. Over 30% of consumers now claim they will buy supermarket brands and 29% plan to trade down and shop at cheaper supermarkets. Consumers are also looking to retailers for help in managing costs with 29% of consumers hoping to take advantage of discounts and promotions, and 27% planning to use loyalty schemes more. This behaviour, which is seeing consumers migrate away from middle tier shops and brands, could become a legacy of the cost of living crisis unless retailers can regain the trust of their consumers, offer more transparency on prices and prove the value of their products.
Despite an overall uptick in consumer confidence over the last three quarters, the tightening of monetary policy has contributed to a sharp decline in consumers’ confidence in the state of the UK economy from -55.6% in Q1 to -66.9% in Q2 2023 (-11.3 percentage points), according to the Deloitte Consumer Tracker. With inflation still well above the Bank of England’s 2% target rate there is the prospect of further interest rate rises to come. The goal of these rate rises will be to supress demand, meaning that there is a high degree of uncertainty in forecasting consumption in the quarter ahead. With this in mind, we expect to see consumer businesses adopting a cautionary approach to the second half of the year. Deloitte’s latest CFO survey indicates that reducing costs and increasing cash flow are the top two priorities for businesses in the year ahead. These priorities are designed to provide businesses with a buffer against further economic challenges including additional rate rises and a squeeze on consumption.