The UK consumer landscape remains a mixed picture, resembling the proverbial curate's egg: good in parts, challenging in others, according to a recent analysis by Shore Capital.
On a positive note, British households saw real disposable incomes grow modestly in May 2025, with the average family having around £250 to spend after essential bills.
This represents a 3.8% increase year-on-year, slightly outpacing the UK's 3.5% inflation rate. Shore Capital points out that this marks nearly two years of rising real living standards, underscoring a steady recovery in household finances.
Challenges
However, this encouraging headline figure masks underlying challenges. Wage growth is slowing, and recent payroll data suggest this trend may continue.
The UK labour market, while robust overall, is showing signs of weakening, raising concerns about future consumer confidence and spending capacity.
ShoreCap highlights that lower-income households in particular have seen little improvement, creating disparities in economic recovery.
The retail sector, too, reflects this uneven consumer sentiment. After a strong April, boosted by warm weather coinciding with Easter, retail sales volumes dropped 1.2% year-on-year in May.
Food sales volumes notably declined by 3.4%, although inflation kept food sales values flat. Shore Capital suggests this slump could be attributed either to spending pulled forward into April or growing caution among consumers worried about future costs and employment security.
Consumer caution
Consumer confidence indicators echo this caution. Despite real wage improvements, overall consumer confidence remains subdued, rising only slightly in June to -18.
Intriguingly, confidence in personal finances contrasts sharply with views on the broader economy, with consumers feeling neutral about their own circumstances but deeply pessimistic about national economic prospects.
This dichotomy, according to ShoreCap, reflects a disconnect between improving personal financial metrics and negative media and political narratives.
The government's continued challenges, potential tax hikes, and geopolitical tensions contribute to cautious consumer sentiment.
Looking ahead, ShoreCap anticipates ongoing mixed signals.
The potential easing of UK base rates (currently stable at 4.25%) could bolster consumer spending.
Higher oil prices
But sustained higher oil prices due to geopolitical instability could negate this positive effect. Indeed, Brent crude prices have risen sharply, up 20% since late May, potentially adding pressure to household budgets.
ShoreCap maintains a cautious stance on discretionary retail sectors, preferring non-discretionary grocers and consumer services, as spending on experiences continues to outpace physical goods.
Data from Barclaycard underscore this trend, with hospitality and leisure sectors experiencing notably higher spending growth compared to retail.
In sum, the UK consumer outlook remains nuanced and uncertain. While disposable incomes are up modestly, caution prevails, influenced by complex economic, political, and global factors.
Investors should remain selective, prioritising sectors resilient to ongoing consumer caution and spending shifts.