BCG's Centre for Growth conducts a monthly Consumer Sentiment Snapshot to track public attitudes towards spending habits, disposable income and the UK's economic outlook.
This month, we find mixed consumer sentiment. Essential spending rose for the third month in a row, with a net 28% of people planning to spend more on food and groceries—an 8 percentage point increase since May. This likely reflects more stubborn inflation among essential items; meanwhile, the increase in discretionary spending was dominated by higher income households.
This reflects a wider shift that is beginning to emerge between higher and lower income groups. Top income households are increasingly the only group driving an improved spending outlook. In January, there was only an 8pp gap in net discretionary spending between the top and bottom half of households, this has now widened to 30pp. The impact of higher income households feeling less pressure on their disposable incomes is also having implications for other parts of the survey – driving both higher spending on premium brands and marginally higher confidence in the country’s economic situation.
Key findings
Essential spending is creeping up. A net 28% of respondents planned to spend more (rather than less) on food and groceries this month, up 8pp since May. This marks the third consecutive rise and likely reflects rising and persistent inflation among essential items. For discretionary items, however, we do see a slightly improved picture compared to last month. This is true for all categories except entertainment and leisure spending and holiday spending, likely due to seasonal effects.
The improving discretionary spending picture is being driven by higher income groups, causing greater divergence from other households. In January, the difference in net discretionary spending between higher and lower income households (above and below £48,000) was just 8pp. This gap has now widened to 30 points. Essential spending is tracking closer, suggesting lower income households are cutting back on discretionary spending to manage the rising pressure on their disposable incomes (which has seen similar divergence).
The reliance on higher income groups has implications for consumer spending trends – driving greater spending on premium brands. The share of respondents choosing more premium brands or opting to spend more on entertainment due to greater disposable income is at its highest since May (22% of respondents reported doing this). While saving more is still the most common response to higher disposable income (29%), the share of respondents saving more has fallen month on month, and by 5pp since May.
Despite a weaker consumer picture, economic optimism is still climbing slowly, though not across all income groups. More people think that the country’s situation will worsen in the next six months than improve (by 5pp) but this is the most positive score since March, when there was a 20pp difference. The greatest change in attitudes has come from those in households earning over £83K, with net 45% of respondents thinking the situation will improve, compared to only 11% in March. This is the only group who are more likely to think the situation will improve than worsen.
Raoul Ruparel, Director for BCG’s Centre for Growth, said:
“ Consumer sentiment continues to reflect the pressure of inflation, with households feeling the strain from rising costs of essentials, particularly food, which our survey shows is at a three-month high. Combined with high levels of saving, these factors are holding back a broader recovery in discretionary spending. Where spending is picking up, it is largely being driven by wealthier households. This highlights a persistent divide which we have seen grow over the last few months: lower-income households remain constrained by the rising cost of living, while the most affluent are expanding their spending across the board. Looking ahead, the persistence of this divide will be an important factor shaping the pace and nature of the consumer recovery.”
Details on the survey:
These results are from a nationally representative poll of UK adults with a sample size of 1,500. Fieldwork was conducted between the 1st and 4th August. The poll results were weighted to the latest UK figures for gender, age, education, and region to ensure overall representativeness.
For further information on the findings, please contact Mel Walker.