A “Burnham bounce”, sunshine and a strong World Cup run for the men’s England football team. Could this be a turnaround moment for Britain’s struggling consumer economy or yet another false start for the UK’s spluttering growth engine?
Last week the data company GfK credited Andy Burnham’s return to Westminster politics for lifting UK consumer confidence at its fastest monthly pace for almost three years in June.
The lion’s share of the improvement was driven by how consumers view the prospects for the British economy, with a 10-point advance in how they felt about the past year, and an eight-point gain for the next 12 months.
“The sense of a fresh start following the appointment of a new prime minister surely accounts for some of this bounce,” it said.
For the economy at large, keeping the tills ringing is important: household consumption accounts for about 60% of the total economy, providing the lifeblood for high streets, service providers, builders and makers nationwide.
Burnham’s decision to introduce a temporary VAT cut for electricity bills in Great Britain from October, cap bus fares at £2 across England, and a 20% cut in business rates for pubs, clubs and live music venues, is designed to help. In a further boost, the headline rate of inflation fell by more than expected, to 2.6%.
However, when it comes to the British consumer there is more going on than immediately meets the eye.
Drill down into the GfK data, and some revealing trends emerge: older Britons, aged 65 and over, are among the gloomiest. By contrast, 16- to 29-year-olds are more optimistic – despite the challenges facing the younger generation from an AI-disrupted jobs market and sky-high rents and house prices.
Youth unemployment is at the highest level in a decade. But over-65s are more likely than the under-30s to predict a rise in joblessness. They also worry more about the economic outlook, their own financial situation and the property market.
Some of this will be down to data quality. Consumers can be unreliable readers of economic conditions. Their mood on survey day can play a role, as can the news agenda.
There are real splits in the consumer perception of the economy, too – exposed by the UK’s deep inequalities. Time and again the poorest, unsurprisingly, have the gloomiest outlook. And it is not hard to see why.
Official figures show UK households spend £676.60 a week on average, with housing, fuel and power accounting for about a fifth of the total. Transport is the next most consumed category, followed by other spending – including package holidays, leisure, communications and food and drink. Health and education make up just 3% of weekly spending on average.
There are worrying signs the wealthiest are pulling ahead. The latest official figures for the year to March 2025 show weekly spending by the richest fifth of households increased at twice the rate of the poorest fifth, rising by £98.10 (10%) to £1,083.60 compared with £18.10 (5%) to £407.30.
Since the onset of the cost of living crisis in late 2021, the average consumer price level has risen by more than a quarter. But in some categories – including for food and energy – it has risen by significantly more.
On top of this, the Bank of England has driven interest rates to elevated levels to combat the inflationary splurge – heaping pressure on borrowers. But a large group of older Britons are mortgage-free, and so have been more insulated.
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With these headwinds it is hardly surprising consumer spending has suffered: official figures show consumer-facing services output remains about 6% below its pre-pandemic level. Travel agents, food and drink, and hoteliers are among the hardest hit.
Threadneedle Street predicts real incomes will have fallen by about 0.5% in the year to the end of June. And with the volatile Middle East conflict expected to stoke inflation over the coming months, the belt-tightening for the British consumer is only likely to continue.
The counterpoint to the spending weakness has been a high household saving ratio, which measures the proportion of disposable income left unspent. At 8.9%, it is currently among the highest levels in a decade.
Households pushed the ratio to 27.5% during the pandemic lockdowns, when they were unable to spend much of their income. Billions of pounds were banked – helping to power the consumption boom, and inflationary bust, after the easing of restrictions.
However, not everyone was in a position to squirrel away money. Bank research shows the highest 40% of earners and retirees saved the most, while the poorest fifth of households suffered a decline in savings.
Reflecting regional divisions, savings were concentrated among affluent people in richer southern English neighbourhoods, where the Centre for Cities found households banked £12 for every £1 saved in poorer areas – mostly in northern English cities and towns.
For the “Burnham bounce” to be sustainable, it will require a continued turnaround in consumer confidence. That will need a laser-like focus on the households struggling the most.
