Consumer sentiment sees continued decline as cost of living pressures surge

Consumer sentiment has continued to decline as the cost-of-living crisis escalates, according to the latest update to PwC’s Consumer Sentiment Survey. Sentiment is now at -36, falling a further 16 points from the last iteration in March. 

Sentiment is now lower than at the start of the first national lockdown in March 2020 (-26%) but still higher than during the 2008 Global Financial Crisis (-51%) and the height of post-recession austerity measures in 2012 (-42%). 

As inflation continues to rise, pressure is mounting on the cost of essential services and non-discretionary spending. The survey findings show that all ages and socioeconomic groups are having to adjust their lifestyles accordingly.

Over 75% of all adults surveyed agreed they had worried about the rising cost of living over the last three months, with 78% stating they had made some form of spending cutback over the same period.

Age or wealth regardless, the cost of living is on everyone’s minds

Findings from the March survey showed greater divergence between different demographics. Despite confidence falling across almost every group, the gap between the most and least optimistic was widening. However, the latest update shows a decline across all demographics and socioeconomic groups.

Over 65s have joined the 55 to 64s as the groups with a steep decline to the lowest sentiment (-56%), driven by increases to utilities, fuel and food prices. While18 to 24s remain net positive at +7%, many are likely sheltered from heightened costs by living with parents or not being responsible for increasing bills. However, they are also most likely to benefit from recently entering the workforce and raising their income.

Regardless, they have still seen a significant drop in sentiment - similar to that in the middle and older age groups - and were the most worried (82%) about the rising cost of living. 

There have also been drop-offs across all levels of affluence. Professional classes who previously appeared to have the greatest financial resilience, are now showing a changed perspective, with over 75% of respondents in this category now concerned about the rising cost of living.

Consumers are trading down and buying less wherever possible

According to the survey, over three quarters of all adults have cut back their spending in some way with 41% making fewer purchases and 35% trading down to cheaper items, eating out less and reducing their energy consumption respectively. Holidays, interestingly, show some signs of resilience. Only 11% of consumers said they have postponed a holiday in the last three months - arguably due to pent-up demand for travel and getaways post-pandemic.

Findings show a reversal of fortunes in discretionary categories that benefitted from pent-up demand post-lockdown. Home improvement sees a net spending intention of -24%, holidays -25% and eating -38% and going out 39% see significantly diminished spending intentions compared to a year ago as lockdown restrictions were ending. Similar to March’s survey, groceries, driven by inflation, are the only category where more people think they are going to spend more, than think they are going spend less, (9%), over the next year. 

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

“Our latest survey demonstrates that all consumers across the country are feeling effects of the cost of living crisis and subsequently looking to tighten their spending habits as the cost of food, fuel and utilities continues to increase. Notably, we see concern and financial worries from groups who until recently showed resilience and optimism, such as the professional classes. This demonstrates just how far-reaching the impact of the cost of living crisis is proving to be. 

“With most consumers undertaking some form of cutting back and over a third looking to trade down to cheaper items, eat out less and make fewer purchases in general, retailers and operators must ensure product lines can be adapted to suit varying levels of available income. Unfortunately, things will get worse before they get better. October’s raise to the energy price cap will be looming on the horizon for many consumers. Retailers and hospitality operators will be predicting tougher head winds as the Covid recovery stalls and you cannot extinguish the possibility of business failures without further government support for the sector. Especially given that consumers are indicating they are being significantly more selective and cautious with who, where and how they spend their money.”