“It is good to see the outlook improving as inflation comes under control, incomes start to go ahead of inflation and sentiment is on the up.”

PwC UK has launched its Retail Outlook for the year ahead using insights from both the Golden Quarter and its own Consumer Sentiment survey.

  • PwC’s latest consumer sentiment shows its highest score since September 2021.
  • Holidays, family and fun are high on consumers priority spending lists.
  • 1 in 3 have money left at the end of the month for luxuries and savings.
  • However, PwC expects the market environment to remain challenging in the first half of 2024.

Whilst we saw mixed fortunes for retailers over the festive period and a slow start to 2024, there are a number of positive indicators that should mean spending will improve as the year progresses. One of these indicators is improving consumer Sentiment which is often an early signal for more positivity on spending. In January 2024, it rose to its best score since September 2021.

PwC’s measure of consumer confidence has been tracking the mood of the nation since 2008 and the latest results show a bounce back after the recovering trend stalled last summer. Now sitting at -4, growing from the Autumn score of -13, it is now more positive than the long-run average over the past 16 years. This continues the trend in the right direction that started in Autumn 2022. 

Despite being surveyed after the busy Christmas season, consumers are considerably more hopeful about the year ahead. When surveyed at the beginning of 2023, sentiment was -32, a long way from the current -4 score. After disciplined Christmas spending with retail sales volumes dropping by 2% in December according to the ONS, consumers are feeling financially a little better off.

One in three consumers state they have money left for luxuries and savings at the end of the month, which represents a six percentage point improvement on the figure in September 2022. In particular, older consumers have been less affected by the cost-of-living crisis, with the majority of over 65s (51%) now saying that their financial situation is “healthy”. 

Conversely, only 8% of consumers say that they are financially struggling, i.e. that they have either missed bills, or are in danger of doing so. The majority of consumers (59%) say they are just about making ends meet.

While these figures should be good news for the retail and hospitality sectors in the year ahead, consumers’ personal priorities suggest that they might be saving money for holidays instead. This year’s top answers were family (34%), traveling (31%), their home (30%), having fun (21%) and personal health (21%), with under 25s and over 45s firmly prioritising holidays over everything else. 

With so many consumers making decisions about what to buy, discretionary retail spending is likely to remain subdued at least for the first part of the year. Therefore, while improving sentiment and falling inflation are good news, it remains a low growth environment and businesses need to give their consumers a reason to shop with them in order to win market share.

PwC’s recent CEO survey suggests that 78% of leaders are moving away from cost-out and are instead focusing on growth and will look at M&A to reinvent businesses in the current climate. 755 deals took place in the UK Consumer Markets sector in 2023 (PwC Global M&A Trends 2024 Outlook), the sector is set to continue to innovate with new deals this year. 

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

“It is good to see the outlook improving as inflation comes under control, incomes start to go ahead of inflation and sentiment is on the up.  However, it remains a low growth environment and spending has been more subdued than expected in the first few weeks of 2024 not helped by the “greyer” than normal weather.  So to achieve growth, companies need to fight for share of wallet and stomach and give shoppers a reason to spend and to spend with them and seek out those consumers with money left at the end of the month. Businesses need to play it as smartly as their consumers – using the power of partnerships, considering M&A deals and harnessing technology to attract new customer bases.”

Source: PwC

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