By Daniel Hunter

Falling inflation and rising employment through 2012 brought some relief to UK consumers as sentiment about disposable income rose by 6 points in the last year, from -39% in the last three months of 2011 to -33% in the same period last year, according to the latest Deloitte Consumer Tracker.

Yet whilst sentiment has improved, the number of consumers who said they had less money in their wallets in the past three months (45%) still outweighs those who said they had more (12%) by almost four to one.

This trend is evident across several key discretionary categories. Between October and December, consumers were less likely to have cut back their spending on going out to the cinema, theatre or concerts (-17% vs. -26%), clothing (-7% vs. -21%) and major household appliances (-7% vs. -11%) compared with the corresponding period in 2011. Indeed, this quarter’s discretionary spending figures in these categories are the most positive since Deloitte started monitoring these trends eighteen months ago.

However, inflation in essential categories is still a concern leaving consumers entering 2013 in a cautious mood. 38% expect utility bills to increase whilst 26% expect to pay more for groceries this year.

This fragile consumer confidence is also reflected in a slight drop across all other measures of sentiment monitored by the Deloitte Consumer Tracker. The net proportion of consumers who are pessimistic about job security, career progression, personal debt, general wellbeing and children’s education and welfare has increased in each case by 2% or 3% in the last three months of 2012 compared to the previous quarter.

“Consumer spending rose modestly last year, even as the wider economy suffered a double dip recession. Lower inflation, improving credit conditions and rising disposable income are positives for the UK consumer," Ian Stewart, chief economist at Deloitte, explained.

"But the factors which fuelled the consumer boom of the ‘90s and ‘00s - steady economic growth, ultra low inflation, cheap and plentiful credit, and soaring house prices won’t return soon.

“After the biggest consumer recession since the 1930s UK consumers remain very cautious. It is likely to take another five years for consumer spending just to get back to where it was in 2007. The worst may be past for the consumer, but any comeback will be long and slow.”

The Deloitte Consumer Tracker also reveals that consumers were more discerning this Christmas with a positive net proportion buying items on sale before Christmas (19%) compared to 2011. However, there was some good news for retailers, as 23% of consumers spent more buying gifts online this Christmas, a sign the sector has reached a digital tipping point.

“Price and convenience continue to be key drivers for consumers when deciding where to spend," Ben Perkins, head of consumer business research at Deloitte, commented.

"With consumers spending more money online, shopping using smartphones and tablets will continue to increase, making those digital devices important sources of revenue for retailers.”

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