How 2024 will be the year of the UK consumer revival

A UK trend of increasing spend on non-essentials is emerging, although consumers remain cautious.

As the green shoots of economic recovery start to emerge in 2024, we see in the latest edition of the EY UK Future Consumer Index (FCI) that consumer financial sentiment is finally beginning to stabilise and improve with 13% of UK consumers feeling better compared with four months ago. As of September 2023, consumers reconsider investing in treats and experiences, rather than just worrying about how to pay the day-to-day bills.

Concerns about affordability and cautiousness around finances remain, but it seems they have peaked, and are starting to reduce. At 47%, the number of those extremely concerned about the UK economy is at its lowest point in 18 months, whilst those extremely concerned by the UK cost of living crisis is down by 10 percentage points in the last year.

Positivity has increased since inflation peaked at 10% in October 2022. Since then, the number of consumers expecting their financial situation to remain constant or improve has risen from 57% to 72%. Looking at comparable economies, such as the US, which are further along in their recovery, suggests that the UK could see an upturn in GDP growth once inflation and consumer sentiment return to previous levels, which would propel this positive momentum further. This is in line with the EY ITEM Club’s GDP expectations with consumer spending growth also anticipated to rise to 0.9% in 2024, up from 0.7% projected in the Autumn Forecast.

2) Health and wellness

Health and wellness continue to be a priority for consumers, who are consistently looking at investing in improving their lifestyles for a healthier body and mind. For example, 58% are now more aware and cautious about their mental health, up from only 50% in May 2020 when lockdowns had hit. Similarly, 18% will pay extra for products that promote health and wellness.

Technology is rapidly integrating into the health and wellness opportunity here too, playing an increasingly integral role in consumers living healthier lifestyles. The study shows that 39% now manage an existing health condition via their app or smart device and 40% track their regular exercise. Meanwhile, 24% track their calorie intake or diet and 17% are using technology to track their stress levels.

Ravi Degun, UK&I EY-Parthenon Strategy Lead for Health and Life Sciences, comments: “Increasingly health and wellness criteria are driving purchasing behaviour for consumers, with nearly a third saying this will be one of their most important buying criteria in three years. Brands and retailers need to be clear on how their products will align with consumers’ desires to live healthier lives.” 

3) Sustainability

Like health and wellness, sustainability has continued to be a trend that has grown in importance throughout the FCI updates, with consumers increasingly taking actions out of necessity rather than aspiration, particularly as climate change impacts are being felt.

There remains a reluctance to spend more on sustainable products, which is even more apparent amongst older consumers – 18% of Millennials have spent more on sustainable products in the past six months, compared with only 6% of Gen X or Baby Boomers.

Although they may not be willing to pay more, sustainability is having a much more powerful impact on buying decisions, with around 40% of Gen Z and Millennial consumers seeing it as extremely important in the products and brands they choose, compared with around half that for older generations.  

Their behaviour around fuller circularity is also evolving, with two-thirds (66%) of consumers recycling or reusing packaging, for example, 39% attempting to repair products rather than replace them, and 27% buying more second-hand products.

Kim Paykel, UK&I Consumer Sustainability Lead comments: “Consumers are increasingly demonstrating a preference for brands that behave more sustainably. Not all categories are equal with interest in sustainability, but retailers simply can’t ignore the fact that this issue is driving preferences and positive feelings towards brands – particularly for Gen Z consumers.”

What this means for retailers and the actions they should take

The latest FCI shows that consumers are starting to spend again in areas such as discretionary items, experiences and brands – but they are proceeding with caution, with affordability still a concern. To harness this greater willingness to spend, as well as to embrace the three key longer-term consumer trends we identified above, retailers and brands should consider the following key actions:

1.  Does your value proposition need a reset to win in the new ‘spending again, but with caution’ consumer context?   
   
   Our FCI data shows an ever-shifting context in how consumers are perceiving value. Many businesses pivoted to ensure their value proposition could combat the increasing preference for private label in the cost-of-living crisis. However, we are now seeing the propensity to buy private label falling and consumers shifting back to brands, as the price differentials between the two have shrunk. It’s clear there is a need for businesses to relook at their value propositions, to ensure they are differentiated, distinctive and offering a clear unique selling proposition (USP).
   
   
2. Are you positioned to win in high-involvement categories?
   
   High-involvement categories refer to products that require substantial thought and deliberation before purchase due to their high cost, infrequency of purchase, or significance to the consumer. They will require businesses to work hard to stand out from the crowded landscape. It is therefore important to have clarity on what it will take to be differentiated to consumers. For instance, the FCI data is signalling that experiences are important to consumers again. We hypothesise that investing in distinctive experiences may be one way to draw consumers towards your products and portfolio over others.
   
   Whilst sustainability is growing in importance, we are still seeing a reluctance from consumers to spend more on products purely because they are ‘sustainable’. Yet, health and wellness continue to be a benefit that is deemed worth paying more for. For some businesses, there may be evidence and merit in looking at how their sustainability positioning could be adapted to link more strongly to individual health and wellness benefits. 
   
   
3. Are you unlocking the power of AI to drive top-line growth, or seeing it more as a cost efficiency play?
   
   The application of AI is one of the most exciting developments for businesses and society in recent memory. Businesses are moving quickly to adapt, yet we are observing more focus on the efficiency side of things and reducing costs. However, we recommend businesses also prioritise investigating how AI could enhance top-line growth through better targeting of consumers and enhanced segmentation. A drive which would also create a learning loop on ways to ensure the value proposition is positioned to win as the consumer context continues to evolve.