Overlay

Our latest Regional PMI survey indicated a positive end to 2023 for businesses across most areas of the UK, after a rollercoaster year in which interest rates reached their highest for well over a decade and wage growth accelerated to new heights.

Our SME Purchasing Managers’ Index also found business activity among SMEs expanded at the fastest rate for seven months in December, led by renewed growth in the service economy.

Although there’s a sense of momentum as we start 2024, our Retail and Leisure Report with Retail Economics reveals businesses in the retail, leisure and hospitality sectors continue to face a complex landscape this year.

Rather than cancelling spend altogether, consumer behaviours are continuing to evolve as households look to mitigate financial strains, for example, by trading down or spreading costs. UK consumers are most likely to boost spending on essentials like energy, home-cooked food, and transport in 2024, as well as holidays and household services while discretionary spending on items like electronics and takeaways is likely to take a backseat.

Consumer-facing businesses need deep insight into the household behaviours currently impacting the economy as the landscape evolves at pace. Our research cuts through the complexity, targeting the unique challenges and opportunities of shifting consumer behaviours.

Five trends influencing consumer spending

1. Households poised to boost spending on essentials

UK consumers are most likely to boost spending on essentials like energy, home-cooked food, and transport, as well as on holidays and household services. Holidays have become a non-negotiable area of spending for many consumers and are increasingly considered a ‘necessity’ rather than a ‘luxury’.

2. Paying for sustainability

Younger consumers exhibit stronger personal responsibility to sustainable practices compared to their seniors. Nine in 10 consumers aged under 30 claim they are adopting sustainable behaviours in at least one major sector in a typical household’s financial basket, and eight in 10 say they would pay extra.

3. Wages and inflation rebalance

As inflation eases from recent highs and earnings remain resilient, 2024 is set to bring a slight improvement to household finances. While we anticipate a modest increase in real income for the average household (remaining below 1% through 2024/25), this marginal growth is unlikely to supercharge a consumer-led recovery.

4. Housing costs step up as interest rates remain elevated

Past interest rate hikes will continue to bite throughout 2024 as households renew fixed rate mortgages (around 80% of total mortgages) and private landlords pass on additional costs to their tenants. Those targeting spending among low-middle-income and middle-income homeowners are likely to feel the impact.

5. Higher returns on savings unlikely to offset cost of living

As businesses face dwindling spending and stagnant house prices, a trend towards cautious financial behaviour will emerge. Households will aim to maintain (or even boost) their precautionary savings. This trend is particularly pronounced among older consumers who are often mortgage-free with a different lifestyle focus.

The consumer outlook for 2024

The cost-of-living crisis has seen consumers adapt behaviours to counteract increased household costs – this will continue throughout 2024.

Middle and low-middle income households most likely grappling with greater housing expenses in 2024 are the least likely to drive volume spending across non-food retail, leisure and hospitality. There will be a continued focus on value from subdued real earnings.

Those facing mortgage or rent renewals over the next year are particularly downbeat about their personal finances, these being predominantly younger, middle-income households. For those with mortgages trying to manage the interest burden, 70% have made, or expect to make, adjustments to their mortgage agreement.

The more affluent expect higher earnings in 2024… This is critical because the most affluent 20% are responsible for around half of consumer spending.

Executive summary

David Scott, our Head of Consumer Industries, says: “I’m delighted with this year’s report, which explores the complex topics likely to impact our sector in depth. It’s encouraging to see data suggesting consumers expect to spend more in 2024, while being increasingly savvy about where they allocate their money. And that travel and hospitality are high on the list when consumers are prioritising essentials.

“I hope the report encourages conversations, partnerships and positivity towards what we can all achieve in 2024 and beyond.”

Richard Lim, CEO, Retail Economics, says: “I'm delighted to partner with the bank in this essential outlook report for 2024. While the most intense period of the cost-of-living crisis has now passed, challenges are becoming more nuanced and multifaceted. These insights could help businesses navigate the intricate terrain of households grappling with debt, against the backdrop of low-middle income households facing heightened financial pressures.

“It’s more important than ever for businesses to remain agile, with a relentless focus on their customers while ensuring their proposition remains relevant in today’s market.”

Visit our hub for more business insight and practical tips.

This material is published by NatWest Group plc (“NatWest Group”), for information purposes only and should not be regarded as providing any specific advice. Recipients should make their own independent evaluation of this information and no action should be taken, solely relying on it. This material should not be reproduced or disclosed without our consent. It is not intended for distribution in any jurisdiction in which this would be prohibited. Whilst this information is believed to be reliable, it has not been independently verified by NatWest Group and NatWest Group makes no representation or warranty (express or implied) of any kind, as regards the accuracy or completeness of this information, nor does it accept any responsibility or liability for any loss or damage arising in any way from any use made of or reliance placed on, this information. Unless otherwise stated, any views, forecasts, or estimates are solely those of the NatWest Group Economics Department, as of this date and are subject to change without notice..

scroll to top