By Daniel Hunter

Consumer confidence is growing and behaviour is beginning to change, according to the latest Deloitte Consumer Tracker. Consumers feel the most optimistic about their disposable income since the Tracker began in 2011.

The sentiment index rose by 7 points to -29%, compared to -36% this time last year. Confidence has been bolstered by an improving economic climate and a reduction in consumer concerns about debt which has nearly halved in the last year, from -15% in Q2 2012 to -8% in Q2 2013.

This renewed confidence is slowly beginning to translate into a change in behaviour as consumers become less defensive in their spending habits. Last quarter, fewer consumers said they were trading down (25% vs. 28% in Q2 2012), bargain hunting (17% vs. 20%) or buying on sale (8% vs. 11%).

The Deloitte Consumer Tracker also shows a slightly greater willingness to spend on non-essentials such as leisure activities. Last quarter, fewer consumers were spending less on holidays, eating out at restaurants and going on short breaks.

“The UK consumer is past the worst and sentiment is gradually improving. We are picking up signs that consumers are less focussed on the shopping strategies they used to beat the recession, such as trading down, bargain hunting or buying on sale," Ian Stewart, chief economist at Deloitte said.

"If the economy continues to mend then we would expect this shift away from defensive behaviour to begin to translate into a greater willingness to spend.

“But for all the positive news about the economy, times remain tough on the High Street and the consumer mood is cautious. Consumers have become used to weak income growth in the last five years. Given the many false dawns since the start of the global financial crisis and the continuing pressure on incomes, consumer spending is unlikely to return to pre-crisis rates of growth for a long time.”

Indeed, the Consumer Tracker shows only 23% of consumers believe the UK is showing signs of recovery and 47% do not expect their disposable income to improve in 2014.

Nevertheless, the positive shift in behaviour is gathering momentum as consumers say they intend to increase their discretionary spending in the next quarter. In Q3 2013, consumers plan to spend more in categories such as ‘restaurants’ and ‘major household appliances’, both of which saw sentiment improve by 3 points year-on-year (-16% vs. -19% in Q2 2012 and -13% vs. -16% in Q2 2012 respectively).

Ben Perkins, head of consumer business research said: “Undoubtedly, things are moving in the right direction. Consumers are beginning to feel better about their financial position. However, they have worked hard to redress their balance sheets and are not as easily tempted to indulge as they might have been prior to the recession.”

Stewart added: “UK business is beginning to find its confidence. Our latest CFO Survey saw business optimism improve for a fourth consecutive quarter. Hopefully, this will spread to the consumer sector.”

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