The UK is facing a ‘vibecession’ – here’s what that means

Professional services firm PwC has published the latest update of its Consumer Sentiment Index, which highlights the changing economic views of UK adults.

The long-running sentiment study has tracked national attitudes towards household spending since 2008, providing insights into potential impacts for consumer markets, businesses such as supermarkets, fashion and leisure.  

The survey shows consumer sentiment has dropped to -12, the lowest score under the new Labour government to date. This means that the country is effectively facing a ‘vibecession’ PwC said. Originally a coin termed in the US, a ‘vibecession’ is a disconnect between sentiment and economic reality. This occurs when there’s a negative public perception despite positive or neutral economic indicators

The survey shows that sentiment has declined across nearly all demographic groups, except amongst individuals aged 25-34 and those in the most affluent socioeconomic groups. The most significant drops are observed among typically positive young demographics (under 25) and families (35-54). 70% of consumers plan to reduce their spending over the next three months. This is the first instance of such a simultaneous decline since the 2022 mini-budget.

Key findings from the report show:

• 41% of respondents said they have little left at the end of the month after essential expenses.

• 19% of those surveyed said they are just making ends meet with a further 8% either unable to pay their bills or in danger of being unable to pay their bills.

• Overall, consumers judge their household finances to be at their most precarious since Autumn 2023.  

Job security has also been highlighted as a key area with 37% of respondents stating this is a concern. This is more acute amongst younger people, with 56% of those under 25 and 62% of those between 25 and 34 more worried about job security or job prospects, and both age groups more concerned than at the start of the year.

“The vacancy rate in the UK is falling, suggesting a softer labour market, partly driven by the economic headwinds but also by organisations considering alternatives to hiring as the National Insurance changes take hold,” said Alastair Woods, Workforce Transformation Partner at PwC UK.

“Many organisations are turning to technology to increase employee capacity, a shift that employees are noticing.”

Cutting back on spending

In terms of category spending, groceries are by far the biggest consumer priority, with 44% expecting to spend more on groceries in the next 12 months, 7% more than in January. This is largely due to expectations of higher prices and more eating at home.

However, respondents have indicated that they plan to cut back on non-essentials where possible. After the other non-discretionary categories of spending on children and pets, the next biggest priority is holidays. 21% say they will spend more on holidays in the next 12 months, compared with 26% in January.

While holidays are relatively more important compared with other spending categories for older age groups, more under 35s plan to increase spending on health and wellbeing and on clothing.

Conversely, 40% plan to spend less on eating out in the coming year, making this one of consumers’ lowest priorities, alongside going out and big ticket purchases.

“With the upcoming second May bank holiday, it’s encouraging to see that holidays remain a priority for individuals over 35 and we can expect this sector to continue its current upwards trajectory,” said Rick Jones, Hospitality, Sport, and Leisure Leader at PwC.

“To engage with budget-conscious consumers, hospitality businesses in the eating and drinking space should prioritise enhancing and innovating the value of the customer experience. Through thoughtful positioning of their services and products, businesses can attract those eager to spend and drive continued loyalty among their patrons,” he said.