New research indicates that British consumers are planning to keep a tight rein on their spending as they enter 2026, with persistent worries about the national economy outweighing a sense of personal financial security.
Economic Pessimism Trumps Personal Confidence
The latest Consumer Pulse Survey from the global accountancy firm KPMG, which polled 3,000 people, found that while 56% felt secure in their personal finances at the end of 2025—a mere 1% drop from the start of the year—concern about the UK's economic health grew sharply. The proportion of people believing the economy was worsening rose from 43% in early 2025 to 58% by the year's end.
This growing pessimism is directly impacting spending intentions, particularly for discretionary purchases. The report highlights that consumers, still grappling with the aftermath of several years of high inflation, have little appetite for splashing out on eating out or big-ticket items like cars and furniture.
Inflation Legacy and Political Pressure
Although inflation, measured by the Consumer Prices Index (CPI), slowed to 3.2% in November 2025 from 3.8% in September, the cumulative price rise during the peak period from January 2021 to May 2024 was a substantial 23%. The high cost of food and energy continues to squeeze household budgets.
The survey's findings will disappoint Chancellor Rachel Reeves, who is relying on a post-budget boost in consumer confidence to drive economic growth. Opposition parties have accused her of increasing uncertainty and dampening confidence by delaying the budget to November, with Treasury briefings sparking speculation about extra taxes for higher earners and retirees.
A Generational Divide in Outlook
The KPMG data reveals a significant generational split in economic sentiment. Respondents aged 65 or over were the most pessimistic and most likely to plan spending cuts in the new year. In contrast, younger adults were more hopeful. Among those aged 35 to 44, almost twice the average proportion (24% vs 13%) believed the economy was improving.
There was a glimmer of positive news for the Treasury, with survey readings showing an improvement in consumer sentiment from the third to the fourth quarter of 2025. Factors such as the recent Bank of England interest rate cut from 4% to 3.75%, falling inflation, and expectations of more stable public finances are expected to help confidence. However, KPMG warned that the "perception of a worsening economy is set to continue into 2026."
An HM Treasury spokesperson pointed to rising incomes helping to offset inflation, stating: "Real wages are up more in the first year of this government than the first decade under the previous government... meaning people have more money to go out and spend." They also highlighted budget measures including increases to the national living wage and a £150 reduction in energy bills.
