The Deloitte Consumer Tracker Q2 2023

Confidence improves for a third quarter

Consumer confidence improved for a third consecutive quarter in Q2 2023, rising by one percentage point. This represents the longest period of sustained improvement in the index since Q2 2018 when improving economic conditions favoured the consumer – including real wage growth and strong labour market.

Three consecutive quarters of growth in consumer confidence provide further evidence of the UK consumer’s ability to adapt to challenging economic circumstances. Consumers have shown a degree of resilience throughout the cost of living crisis, adopting recessionary behaviours in an attempt to maintain their standard of living and cope with unexpected rises in the cost of energy, housing and food. However, there is mounting evidence to suggest that many consumers will face further pressures on their personal finances throughout the remainder of the year.

The Deloitte Consumer Confidence Index

Net % of consumers who said their level of confidence has improved in the past three months

Note: Deloitte’s overall confidence index is the aggregate of six individual measures: levels of disposable income, levels of debt, job security, job opportunities and career progression, children’s education and welfare, and general health and wellbeing.

Individual measures of consumer confidence

Net % of consumers who said their level of confidence has improved in the past three months

Consumer spending in the last three months

Net % of UK consumers spending more by category over the next three months

Note: New categories were added to Essential spending in Q2 2020

Key takeaways for Q2 2023

  • Since reaching an all-time low of -20.3% in Q3 2022 the Deloitte Consumer Confidence Index has shown modest improvement, rising by four percentage points over the last three quarters to -16.3% in Q2 2023.
  • The rise in overall confidence was driven by quarter-on-quarter improvements in four of the six measures included in the index, compared with Q1 2023, consumers were notably less pessimistic about their household disposable income (+5.7 percentage points) and their general health and wellbeing (+4.2 percentage points). In contrast, consumer sentiment towards job opportunities and level of debt fell by 2.9 and 2.1 percentage points, respectively. The decline in sentiment towards job opportunities is a sign that the labour market may be starting to loosen slightly in response to rising interest rates and uncertainty in the economy.
  • The significant increase in sentiment towards household disposable income is driven by many consumers seeing an increase in their income. Data from the Office for National Statistics (ONS) showed that employee’s regular average pay, which excludes bonuses, grew by 7.3% in the three months to May this year.
  • Essential spending was down by 1.1 percentage points compared with Q1 2023 as consumers were able to reduce their spending on utility bills (-17.7 percentage points), transport (-2.1 percentage points) and – to a lesser extent – grocery (-0.8 percentage points). However, in an indication that a prolonged period of high inflation is having a lasting impact on prices, spending on essentials is still a net positive (21.8%) and is 10.8 percentage points higher than the same period in 2019.
  • Consumers devoted a larger share of their spending towards discretionary items (+4.9 percentage points). In addition to inflationary pressures easing, multiple bank holidays in Q2, nationwide celebrations for the king’s coronation, the hottest June on record and the prospect of a summer free from COVID-19 travel restrictions encouraged consumers to loosen the purse strings after five consecutive quarters of reduced spending on discretionary items.
  • Despite pressures on consumer budgets easing, many consumers are still adopting coping strategies to manage the rise in the cost of living. As many as 35% of consumers spent less on clothes and shoes, 34 % spent less on going out and leisure activities and 29% reduced the amount of food they bought. Among those looking to save money, 34% switched to cheaper products, 32% took advantage of promotions and discounts, and 30% shopped at cheaper shops.

Consumers coping mechanisms in response to rising prices

Which, if any, of the following have you done, or do you intend to do to reduce your overall expenditure as a result of the increase of the cost of living?

Outlook for Q3 2023

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.

Consumer expectations for Q2 2023

Thinking about your financial situation and spending plans for the next three months (i.e. July to September 2023) compared to the last three months (i.e. April to May 2023), do you expect to see an increase or decrease in each of the following, or will it remain about the same?

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About this research

The Deloitte Consumer Tracker is based on a consumer survey carried out by independent market research agency, YouGov, on Deloitte’s behalf. This survey was conducted online with a nationally representative sample of more than 3,000 UK adults aged 18+ between 16th to 22nd June 2023.

A note on the methodology

Some of the figures in this research show the results in the form of a net balance. This is calculated by subtracting the proportion of respondents that reported feeling more negative from the proportion that reported feeling more positive. For instance, assume that 30% of respondents reported they are spending more, 50% reported no change and 20% reported they are spending less. The net balance is calculated as 30% – 20% = 10%. This means 10% of consumers reported that they spent more rather than less.

Key contacts

Céline Fenech

Research Manager

Dominic Graham

Managing Partner Consumer