Expert analysts consider what the technical recession means for consumer spending

By Tony Corbin in Featured, Industry News 21st February 2024

As the UK slipped into technical recession, the fall in economic output was steeper than most economists expected, with the economy barely growing over the course of last year.

In light of this, analysts at Mintel have offered additional insights and debunked what that means for consumer spending.

The insights show:

Despite the economic slowdown, consumer confidence is up on mid-2023 levels due to rising wages and consumers’ adaptation to constant upheaval, including the impact of COVID-19 and the cost of living crisis.
Only 11% of consumers expect the economy to grow significantly, compared to 38% who think it’ll stay about the same.
Ever since mid-2023, average wages have been edging ahead of the inflation rate, meaning that people finally have a little bit more slack in their budget.

Toby Clark, director of EMEA research at Mintel, said: “In the real world, a 0.3% decline isn’t going to feel any different than a 0.3% increase. What really matters is how much money you’ve got left in your bank account at the end of the month.”

Despite the fall in national economic activity over the second half of 2023, 28% of consumers say that their finances are healthy, and 44% that they’re at least doing OK.
21% of people with a household income of less than £15,500 are either struggling or already in financial trouble, compared to just 2% of people earning at least £50,000.
Mintel’s January data shows a fall in sentiment, but it’s similar to a similar post-Christmas dip in 2021 and 2022.
The medium-term trend, though, is broadly positive, and sentiment ended 2023 higher than at any point since mid-2022.
In response to rising prices, 34% are shopping more at low-cost retailers, while 32% are shifting to private labels, and 43% are being more careful about spending on luxuries.

What does this mean for the retail sector?

Consumers are attempting to minimise the impact by cutting back on luxuries, and switching to private label or lower-cost retailers.
News of a technical recession won’t significantly shift consumer behaviour in the retail sector.
Christmas 2023 hints at how polarised any improvement in retail spending will be in 2024. Average spending on gifting fell 5% year-on-year, and gift spending for mid-income households (£25k-£49.9k), dipped by 14%.
High income shoppers grew spend (+11% y-o-y), with more purchasing in high ticket categories like electricals, jewellery and watches.

Nick Carroll, category director – retail insights at Mintel, added: “The hope is further easing of inflation and continued wage growth will allow finances additional time to recover, and that in the second half of the year we may see a broader range of consumers’ act in the way we saw a proportion of high earners do during Christmas 2023, upping discretionary spend and releasing the purse strings a little.”