A consumer spending revival may be on its way for the second half of 2024. Favourable economic indicators, combined with the highest consumer sentiment in three years, could fuel a more positive finish to the year for some retailers. While there’s an intention for more spending, the majority of consumers are planning cutbacks. So where will consumers prioritise spending? And how can retail and leisure operators prepare for the Golden Quarter?

Signs of a spending revival? Uptick in consumer sentiment and household finances

The pinch felt by consumers appears to be easing. Economic indicators – falling inflation, interest rate cuts expected later this year, and rises in wages, benefits and pensions – all point more favourably for consumers. Many are now starting to feel the impact of these macro changes and our latest survey shows household finances are now at their strongest for two years.

Consumer sentiment has also continued to climb to the highest level seen in three years, well above the long-run average of -14 (we’re typically a negative country). Our main index increased from -5 in March 2024, to zero on the weekend following the July general election. This is good news for consumer businesses: our index has historically been a reliable early indicator of future consumer spending patterns over the coming six to twelve months.

And this uptick has come at the same time as an increase in the number of consumers reporting more money left over for luxuries or savings, up from 31% in June 2023 to 34% this year. In fact, overall household finances are now in the best shape we’ve seen in over two years, with just 7% of consumers saying that they are either struggling or in trouble financially - half as many as in September 2022.

Will the current trend continue?

The improvement in inflation appears to have bottomed out, with services inflation stubbornly high and pressures on grocery and energy price inflation expected this autumn. While interest rates are falling, more than half a million households will need to renew their mortgages at higher rates in the second half of 2024 alone. There is also unlikely to be a repeat of the National Insurance cuts we saw earlier in the year.

So there is a good chance that consumer sentiment may be peaking. This would be similar to the ‘honeymoon’ in consumer sentiment we saw in 2010, directly after the last change in government.

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