Despite UK consumers generally showing increased optimism throughout 2021 as lockdown measures have been removed and the vaccination process accelerated, we’ve recently seen a reversal of this trend. In Q3 2021, 54% of UK consumers said they were ‘somewhat, very, or extremely’ optimistic about the future, down from a peak of 61% in Q2 2021. Despite the drop, this still compares favourably to Nov. 2020 when only 34% voiced optimism. Further reinforcing a dip in optimism, consumers with a ‘somewhat, very or extremely’ pessimistic view of the future increased from 20% in Q2 to 25% in Q3.
This reversal in optimism was supported by perceptions around household finances, with consumers viewing their finances as ‘worse than planned’ growing from 26% in Q2 to 32% in Q1. In contrast, discretionary spending — as a factor of household spend composition — remains stable with 44% identifying cutting back on this as a key change, which is similar to Q1. There is, however, an expectation that discretionary spending may decrease, with 38% of consumers expecting to see a decrease in coming months, an increase from 31% in Q2.
About one in four consumers (24%) intend on applying for new/refinanced credit in next 12 months, continuing a downward trend this year from 32% in Q1. Of those planning to apply, 44% nominated a new credit card, while a further 32% identified a new or refinanced mortgage as being the priority.
More specifically, demand for credit is rising for younger consumers: 42% of Gen Z and 34% of Millennials plan to apply for new credit or refinance existing credit compared to 9% of Baby Boomers. For Gen Z planning to apply, credit cards remain in demand with over one in three (38%) looking to apply for a new credit card in the next year — an increase from 26% in Q2. This may suggest that credit cards remain an important point of credit access for younger demographics despite the rise of alternatives, such as buy now pay later (BNPL) products.