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Consumer sentiment falls as cost of living and inflation pressures impact households

04 Apr 2022

  • Consumer sentiment drops to -20, reaching similar levels seen in the first UK lockdown
  • Divergence growing between demographics and regions as inflation changes consumer expectations
  • Cost of living crisis sees post-pandemic demand for discretionary spending significantly diminished 

PwC’s Consumer Sentiment Index for March 2022 has seen a considerable drop off in sentiment reflecting the cost of living crisis.

The Index found that consumer sentiment is currently tracking at -20, after peaking at +10 in June 2021. A 30 point decline in nine months is the biggest sustained fall in the survey since the global financial crisis in 2008. However, at -20, consumer sentiment is still higher than it was at the start of the pandemic (-26), after Lehman's collapse in Oct 2008 (-51) and the post-recession austerity period (-42).

Chart 1 Consumer sentiment index: “Thinking about your disposable income, in the next 12 months do you expect that your household will be…” Source: PwC Consumer Sentiment Index, Mar 2022

Chart 1, Consumer Sentiment Index: “Thinking about your disposable income, in the next 12 months do you expect that your household will be…” Source: PwC Consumer Sentiment Index, Mar 2022.

This time last year, the Index measured +8, driven by improvements across every age group and demographic. At that point we saw an upturn in category spending intentions, with more discretionary purchases linked to leisure, recreation and fashion prioritised over groceries and the home.

Run across the weekend of 17-20 March, the latest survey shows the real impact of the cost of living crisis across the UK, with the findings coming after the start of the conflict in Ukraine, but before the Chancellor’s Spring Statement.

Divergence growing between demographics and regions

Historically, there have been relatively consistent patterns in sentiment between different demographic groups. Young people, for example, are more optimistic - typically due to entering the workforce and progressing their careers - unlike older people whose income has typically plateaued or are closer to exiting employment. 

The latest index shows that whilst sentiment has fallen in almost every age group, the gap between the most and least optimistic is wider than ever. Worries over inflation and disposable income are weighing on consumer’s minds. Albeit the younger age groups see inflation as least likely to affect them, but this could be due to more younger people still living at home.

Chart 6, inflation expectation by age group. Source: PwC Consumer Sentiment Index, Mar 2022.

Chart 6, inflation expectation by age group. Source: PwC Consumer Sentiment Index, Mar 2022.

What this means for consumer spending priorities

Last March’s sentiment tracking saw category spending expectations much improved, as the prospect of lockdown easing and for the first time in the history of the index, discretionary categories exceeded the more ordinary, such as grocery shopping, for example. 

However, the latest index shows a complete reversal in consumer priorities. Grocery shopping is the only category with a net positive spending intention, where people expect to spend more, rather than less in the next 12 months. This will almost exclusively be driven by inflation, rather than specifically heightened consumer demand. 

Chart 8, Category spending intentions, March 2022 Source: PwC Consumer Sentiment Index, Mar 2022.

Chart 8, Category spending intentions, March 2022. Source: PwC Consumer Sentiment Index, Mar 2022.

Elsewhere, spending expectations on going and eating out have significantly dropped, with both categories now the lowest. Holidays and fashion spending have also seen substantial falls since last Spring. While pent-up demand and weak comparatives mean that both of these categories should see double digit growth vs 2021, neither are expected to approach pre-pandemic heights, given the impact of the wider cost-of-living crisis on disposable income.

Chart 9, Change in category spending intentions, Mar 2021- Mar 2022. Source: PwC Consumer Sentiment Index, 2021-22.

Chart 9, Change in category spending intentions, Mar 2021- Mar 2022. Source: PwC Consumer Sentiment Index, 2021-22.

Lisa Hooker, Consumer Markets Leader at PwC, said: 

“It’s clear that consumers are having to deal with a significant change in their spending priorities compared to even a year ago, where the index measured a record level of positive sentiment coupled with spending intentions ramping up in more discretionary categories such as leisure and fashion. With the latest research, we see consumer spending expectations move almost exclusively toward more vital and essential areas such as grocery shopping, children and babies.

“The shift in sentiment is both significant and sudden. Whilst there is still some post-Covid recovery, spending expectations on eating out and going out have plummeted as consumers look to tighten their belt as they face up to cost of living pressures. Even after the extensive travel disruption over the last two years, holiday spending is not immune and will consumers prioritise their main holiday over other breaks, like we saw during the global financial crisis?

“Businesses that can help their customers to cope with the crisis by offering them the choice to trade down - whether special offers, cheaper brands, or set menus, for instance -  are more likely to keep their loyalty for when things get better.” 

PwC Consumer Sentiment Survey

  1. PwC’s latest consumer sentiment survey was conducted between 18-21 March 2022 and includes responses from a nationally representative sample of 2,007 adults.
  2. PwC has asked the same question every few months since April 2008: “Thinking about your disposable income (money remaining after household bills, credit cards, etc.), in the next 12 months do you expect that your household will be better off or worse off?”. The index is calculated by subtracting the percentage of people who think they will be worse off from those who think they will be better off. Historically this index has provided an insight into the pulse of the nation, and has been a good indicator of future consumer spending patterns.
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