Consumer confidence may be recovering, but are consumers ready to spend?

The escalation of conflict in the Middle East delivered a fresh blow to UK consumer confidence in early 2026, reigniting concerns about energy costs, inflation and household finances. For consumer-facing businesses, keeping pace with how these pressures are shaping consumer behaviour has become increasingly important.

Our latest Consumer Outlook tracks how consumer sentiment shifted during the crisis, based on monthly surveys conducted between February and May 2026. It captures both the sharp fall in confidence as pressures intensified and the tentative recovery that followed.

On the surface, the data points to improving conditions. But the underlying picture is more cautious.

Households remain under pressure. Disposable income is tight, savings drawdown has accelerated and expectations for future finances continue to weaken, even as current comfort has improved.

Further cost pressures are still coming through. Fuel, energy and food costs are likely to weigh on budgets as the year progresses and any renewed escalation in the Middle East could quickly reverse recent gains in confidence.

What this means for UK consumer businesses

This is creating a more uneven consumer market. Spending is holding up in categories that feel essential, habitual or hard to cut, such as pet care, short breaks, subscriptions and fitness. But bigger-ticket and discretionary purchases are still being deprioritised, with clear signs of trade-down emerging.

The consumer may feel better today, but they are not yet spending like it. Until disposable income starts to recover, businesses should expect demand to remain uneven, value-conscious and sensitive to changes in the wider economic outlook.

Below, we unpack the key forces shaping consumer behaviour and what they mean for consumer-facing businesses.

Since April's survey, there has been a modest improvement in some of the key measures of household financial confidence, suggesting concerns about the impact of the Middle East crisis have eased. However, when we look at spending power and future outlook, the picture is more nuanced.

Confidence up, spending power down

49% of consumers felt financially comfortable in May, rebounding from 44% in April after sentiment weakened through early spring. The May reading also edged above February's 48%, suggesting confidence recovered from the immediate shock as concerns about energy prices and inflation eased. However, broader signals across the wider survey period tell a more cautionary story.

Tellingly, the underlying financial position of households shows little sign of improvement. Disposable income as a share of monthly earnings remains close to April's low at 22.6%, having fallen from 23.4% in February.

The forward-looking outlook supports this reading, with the share of respondents expecting their finances to improve in the next three months falling from 40% in February to 36% in May, even as current comfort has risen.

Ultimately, consumers who feel better off today, are not more optimistic about tomorrow. A meaningful disconnect that cautions against reading the May improvement in financial comfort as a durable shift.

The savings data reinforces this picture. The share of consumers planning to save more over the next three months has fallen from 16% in February to 14% in May, while those expecting to draw down on existing savings has risen from 5% to 8% over the same period.

More than a fifth of respondents (21%) now say they will save less than usual - little changed from April's peak, but above February's 17%. Together, these shifts suggest that for a growing number of households, savings are becoming a buffer against income pressure rather than a financial goal in their own right.

Spotlight on Gen Z: optimistic but exposed

Gen Z remains an important growth audience, but brands should not assume optimism equals spending freedom.

The GfK consumer confidence index indicates Gen Z consumers have trended much more confidently than older consumers since 2024. Our data has mirrored this trend, and is borne out in this future outlook, with 56% of Gen Z expecting their financial situation to improve over the next three months, compared to 36% of all consumers.

However, Gen Z's underlying financial position tells a more sobering story. Job security anxiety remains significantly elevated, with 58% of Gen Z respondents expressing concern about employment prospects in May, which is 18% higher than the overall rate of 40%.

Notably, while job security concerns eased for the broader population between March and May, they worsened for Gen Z over the same period, rising from 53% to 58%.

This anxiety is showing up in behaviour. The share of Gen Z planning to draw down on existing savings has more than doubled since February, rising from 5% to 11%, running ahead of the overall population rate of 8%.

A cohort that entered the year with stronger savings intent than most is increasingly using those savings as a financial cushion.

As entry-level job openings continue to face pressure and the implications of AI for the workplace loom large for this generation, some degree of uncertainty in the Gen Z data is likely to persist.

Brands should see Gen Z as a growth audience but not assume they have the spending freedom to match their confidence.

Groceries saw a sharp spike in 'spend-more' intent in March (6% above February) as households redirected money away from eating out, where spend-less intentions increased 3%. That uplift has since eased as consumers’ anxieties moderated, and by May grocery spending intentions returned close to their pre-crisis level.

Meanwhile, spend-less intentions for eating and drinking have improved to a position stronger than in February, before the crisis in the Middle East began. The two categories effectively borrowed demand from each other.

The key takeaway is that supermarkets continue to win a growing share of food and drink occasions that would once have taken place in hospitality venues.

What began as a necessity during lockdowns has evolved into a value-driven habit during the cost-of-living crisis and remains evident today when confidence and finances become squeezed.

The categories consumers won't cut

The most protected spending categories through the confidence dip were:

• Pet food and pet care: the only category to maintain positive net spending intent throughout February to May.
• Short-stay holidays: back to February levels by May, suggesting weekend breaks remained a priority.
• TV and music subscriptions: among the smallest shifts in spending intent across the period.
• Fitness and wellbeing: similarly resilient, with little movement despite wider confidence swings.

Whether driven by the cost of cancelling or simple habit, these are categories where confidence fluctuations failed to move the needle.

Where spending is falling back

While sentiment improved in several areas during May, four categories remained below their February starting point, suggesting a more persistent drag on spending intentions:

• Home and garden improvements: net spending sentiment down 3% since February and the weakest performer, with little sign of recovery.
• Days out: also down 3%, reflecting continued caution around discretionary leisure spending.
• Children's and baby products: down 2%, indicating sustained pressure on family-related discretionary spend.
• Health and beauty: down 2%, with a more uneven pattern of decline across the period.

This mirrors a wider weakness across big-ticket purchasing, with consumers needing more than a momentary boost in confidence to commit. Optimism around future household finances and property values is in short supply and suggest this is not simply a delayed rebound, but a more sustained pullback.

Health and beauty shows a different pattern. Its weakest net spending reading came in April rather than March, suggesting consumers reassessed their budgets after the initial shock. Although sentiment has since improved, intentions to spend more continue to trend lower. This points to a gradual weakening in consumers' willingness to trade up, increasing the likelihood of a renewed shift towards lower-cost brands and own-label products.

The key takeaway is that improved confidence has not translated into a broad-based recovery in spending intentions. Instead, households are continuing to prioritise certain categories while remaining cautious elsewhere, suggesting spending resilience is becoming increasingly uneven across the consumer economy.

While households entered 2026 in relatively good shape, the outlook for household incomes and consumer spending has weakened. The combination of higher energy costs, rising inflation, a weakening labour market and the prospect of further tax rises means consumers are likely to face a more challenging environment over the coming year.

• Higher fuel prices are the most immediate risk. The conflict in Iran has pushed up global oil prices, feeding directly into higher petrol and diesel costs and indirectly into the prices of a wide range of goods and services. The impact of higher oil prices will be felt for the rest of the year as it feeds into higher food and travel prices, pushing inflation up. If inflation remains elevated, wage growth will be absorbed by higher prices, putting renewed pressure on real household incomes.
• The labour market is also beginning to cool. Unemployment has edged higher and vacancies have fallen back from their post-pandemic highs. While the UK is not facing a sharp deterioration in employment prospects, weaker hiring and slower wage growth will make households more cautious about spending.
• Fiscal policy adds another layer of uncertainty. A change in the top team in Downing Street would almost certainly be followed by another budget, raising the possibility of further tax increases in the years ahead. This would place additional pressure on disposable incomes and household spending power.

However, the outlook is not uniformly bleak. A diplomatic breakthrough in Iran would ease some of the pressure on household finances. Lower oil and gas prices would ease inflationary pressures, improve consumer confidence and provide an immediate boost to real incomes. The UK economy remains sensitive to energy prices, meaning any easing of geopolitical tensions could deliver meaningful relief.

Households still have some financial resilience, with the saving rate still elevated by historical standards. Some consumers have scope to reduce precautionary saving to protect day-to-day spending. That resilience may help support consumption, although it is unlikely to prevent a more subdued spending environment.

Overall, the balance of risks for household incomes and spending has shifted to the downside. But while the consumer outlook has undoubtedly darkened, it is not a worst-case scenario.

To understand what these findings could mean for your business, or to find out more about how our consumer industry experts can help, contact Jacqui Baker or your usual RSM adviser.

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