For UK consumer-facing businesses, 2026 is shaping up to be a mixed year. Selective demand, uneven recovery and a focus on value and experience are set to be key trends.

Our Consumer Outlook draws on insights from 2,000 consumers, real-time performance data from RSM’s proprietary industry trackers and economic analysis to assess how consumer behaviour is evolving. In this edition, we unpick the findings and what they mean for demand and performance across the consumer sector in the year ahead.

UK consumer sentiment closes 2025 steady, but increasingly polarised. Just over half of adults (52%) say they feel financially comfortable, unchanged from our survey a year ago. However, the share of those feeling financially squeezed has risen to 18%, up from 14%. This divide is most acute among Gen X, where a quarter (26%) say they are financially stretched, reflecting the ongoing pressures of the sandwich generation – a group juggling the costs of raising children while also supporting ageing parents.

Overall sentiment for those who feel financially comfortable may be holding, but the gap between those coping and those struggling is widening, particularly among lower-income and mid-life households. For businesses, this widening gap reinforces the need to move away from ‘average consumer’ assumptions and towards more targeted propositions focused on where spending power is concentrated.

Looking ahead to the next three months, expectations around personal finances are similarly uneven, but broadly follow the trend of last year. The proportion of consumers who expect to be better off has edged up to 41% (from 38% last year), but those anticipating a deterioration in their financial situation has increased to 21%, the highest level since May 2023. In addition, fewer consumers expect their financial situation to stay the same as last year (39% vs 43% last year).

Some groups, however, feel more buoyant, with optimism around future finances strongest amongst families with children (56%), Gen Z (65%) and Millennials (57%), who all expect to have more money in three months’ time. In contrast, older consumers – 28% of those aged 65+ – and those households earning £20,000 and under (34%) are most likely to expect their situation to worsen. This divergence underpins the broader story – not panic, but general polarisation.

Given this divergence, we expect demand in 2026 to be selective rather than broad-based. Rather than a uniform recovery in consumer confidence, growth is likely to come from specific cohorts.

Disposable income among UK consumers

There is a glimmer of optimism however, as perceptions of disposable income are improving. On average, consumers report a higher share of income left after paying for bills and food, rising by 7% year-on-year to 26% of monthly income. Gen Z and Millennials are largely driving this improvement. They report the strongest gains, but Gen X and Baby Boomers see more modest relief. Again, this mixed picture reinforces the growing divide between those households beginning to feel financial headroom and those still feeling financial pressure.

However, higher disposable income is not translating into greater confidence to spend. The prevailing mood remains cautious, with 19% of consumers planning to save more than usual in the coming quarter and a further 38% maintaining their current savings rate, which is higher than historical standards (the UK savings ratio is currently 9.5%).

Gen Z and Millennials are leading this shift, driven by a mix of longer-term goals such as home ownership and heightened employment anxiety, with 61% of both cohorts concerned about their job security over the next six months. This uncertainty is leading to defensive saving behaviour for these groups, even as disposable income improves. As caution in discretionary spend continues, improvements in income are not automatically translating into higher volumes for consumer-facing businesses.

Across consumers, willingness to dip into savings remains limited, with 18% expecting to save less and just 8% planning to draw down saving reserves to help manage rising costs. This survey was conducted close to the Christmas period, which suggests that spending restraint is a structural rather than seasonal shift. Backing this up further, qualitative insights from our survey show 57% of consumers would use a £5,000 windfall to save or pay down debt rather than spend it. With elevated saving behaviour set to stay, a rapid rebound in consumer demand is unlikely and limited in scope.

Encouragingly, selective areas of discretionary spending show their strongest improvement since 2022. Health and beauty led the shift, with the share of consumers planning to spend more doubling year-on-year to 10%. This change is most pronounced among Gen Z, where nearly one in five (19%) now expect to increase spend on health and beauty, up from 8% last year – one of the largest movements across the survey.

Momentum is also emerging in fitness and wellbeing where 7% of consumers plan to spend more, up from 3% last year, and there are modest improvements in clothing and fashion spending with 8% planning to spend more, up from 5% a year ago. The direction of travel points to a cautious re-engagement with personal care, wellbeing and refreshing wardrobes, even as overall spending confidence remains constrained. This suggests growth in 2026 is more likely to be category-specific and experience or ‘feel-good’ led, rather than a general recovery across discretionary spend.

Elsewhere, caution continues to dominate spending. Eating and drinking out (33%) and takeaways (27%) remain the top areas where consumers plan to cut back. Though, given that the intensity of pullback has eased compared with last year, suggesting sensitivity around hospitality-led discretionary spend may be beginning to soften heading into 2026. Supporting this, a growing share of consumers say they will not cut back in any area, particularly among Gen X (22%), Millennials (18%) and families with children (18%). We expect a spending return to be selective of categories that deliver a ‘feel-good’ payoff.

While spending intentions are improving at the margins, the extent to which these translate into realised demand will be shaped by macroeconomic constraints around income growth, employment and household saving behaviour.

Despite real household disposable incomes (RHDI) rising by around 6% over the past two years, real consumer spending has been flat, reflecting a marked increase in household saving compared with the pre-pandemic period. This has been an unusual feature of the recent recovery.

Looking ahead, the outlook for income growth is much weaker. A softer labour market and slowing wage growth will weigh on nominal earnings, while inflation, though easing, will continue to absorb much of those gains. Further down the line, incomes should grow a little faster as inflation falls and the labour market improves, but fiscal drag will offset a significant share of this improvement. Overall, RHDI growth is likely to average only around 0.5% a year over the next couple of years.

On its own, that growth would not support a strong recovery in consumer spending. However, there are reasons to believe households can partly offset slower income growth by reducing their saving rate. Lower interest rates should gradually lessen incentives to pay down debt, while the recent period of high saving has left household balance sheets in a healthier position, with lower debt-to-income ratios and stabilised debt servicing costs. In addition, consumer confidence should improve as inflation falls, unemployment eases and the housing market recovers, reducing fears of future tax rises.

While only a modest fall in the saving ratio is expected, from 9.5% to a little under 9.0% by the end of 2026, this should be enough to allow real consumer spending to pick up modestly.

Consumer business performance in 2025 reflected a decisive shift towards experiences, but with growing polarisation across individual sectors. Travel and tourism emerged as a success area. Consumers traded up on travel, with the RSM Hotels Tracker showing the moving annual total for hotel occupancy rising from 75% in early 2024 to 78% by the end of 2025. A year-on-year increase in inbound tourism provided an additional tailwind, particularly for urban and gateway markets. Luxury hotels outperformed, while budget operators saw softer demand. This premiumisation trend echoed across the wider travel sector as airlines including Virgin Atlantic and Air France expanded premium cabin capacity.

Many luxury goods brands found 2025 a challenging year. The travel and tourism sector’s divergence from this shows a growing preference for experiential value over physical goods, a trend the industry is backing with several luxury hotels due to open in the UK in 2026. Our survey supports this optimism and shows 42% of higher earners (£80,000 and up) retain more than 40% of their income after bills, with 12% planning to spend more on short breaks and 11% on longer holidays this year.

By contrast, more transactional discretionary sectors struggled to build sustained momentum in 2025. Data from the NIQ RSM Hospitality Business Tracker shows UK hospitality trading was broadly flat. Pubs outperformed the market as consumers prioritised value-led social occasions, while restaurant demand remained weak as households curtailed eating out.

ONS retail sales show the industry endured a stop-start year in 2025, with periods of growth driven by favourable weather and online demand giving way to softer volumes as Budget uncertainty weighed on confidence. While the golden quarter was not uniformly strong, December delivered a surprise uptick, pointing to a modest post-Budget bounce rather than a sustained recovery. This uneven trading underscores how sensitive demand remains to confidence and timing, reinforcing the need for margin discipline and flexible operating models across retail and hospitality. The same divergence is evident in the GfK consumer confidence index, which continues to signal a polarised backdrop, with younger consumers materially more confident than older age groups.

UK Consumer Outlook 2026: strategic takeaways for the year ahead

Taken together, the outlook for 2026 points to continuity rather than inflection. While easing inflation and interest rates should provide some cause for optimism, consumer confidence remains polarised and spending behaviour selective. A preference for saving and underlying employment concerns are lingering, particularly among younger cohorts. Dampened sentiment but with a degree of positivity in areas will create a trading environment characterised by bursts of activity rather than sustained momentum.

Against the backdrop explored in this outlook, success in 2026 will be defined less by volume growth and more by margin management, precise targeting of resilient consumer groups, and the ability to respond quickly to shifts in demand. Travel and tourism is best positioned to outperform, building on momentum established in 2025, while hospitality and retail remain more exposed to minor shocks given their greater sensitivity to consumer confidence and timing.

As a result, we do not anticipate a broad-based rebound in consumer-facing sectors in 2026. Instead, performance is likely to remain uneven, with seasonal peaks and category-level divergence persisting. Overall, trading should be marginally stronger than in 2025, largely consistent with RSM UK’s GDP growth outlook of around 1.2% for 2026, but growth is expected to be steady rather than spectacular.