The rise in consumer confidence is the largest quarterly increase in confidence in 18 months

The rise in consumer confidence is the largest quarterly increase in confidence in 18 months

UK consumer confidence has soared to a five-year high in the third-quarter of 2016, up 3 percentage points from the previous quarter – suggesting UK shoppers have shrugged off post-referendum pessimism.

According to the latest Consumer Tracker from business advisory firm Deloitte, the rise in consumer confidence is the largest quarterly increase in confidence in 18 months, since Q4 2014.

Five out of the six measures which make up the confidence index have risen since the second-quarter, with job security, job opportunities and career progression seeing particularly strong gains in consumer optimism. Confidence in job security rose by 6 percentage points compared to the previous quarter, after having fallen for the previous three consecutive quarters.

However, London's confidence is now lower than the rest of the UK. Consumer sentiment in the capital fell by 3 percentage points in Q3, and is now 9% lower than it was at the same period last year. Brexit uncertainty is a likely reason for this disparity, particularly due to the fact that voting patterns in the referendum showed that the majority of Londoners were 'remainers'.

"In contrast to the business community, UK consumers have put Brexit fears to one side," says Ian Stewart, chief economist at Deloitte. "Consumers are benefiting from favourable tailwinds, including low inflation, low unemployment and relatively high disposable incomes.

"In an inversion of the usual relationship London's consumers are less upbeat than the rest of the UK. The Brexit vote may be weighing on a region in which 60% of the population voted to Remain and where reliance on financial services, migration and capital flows are especially strong."

The Q3 Consumer Tracker also showed that consumer spending is continuing to shift from everyday essential items to more discretionary, non-essential categories. Spending on essentials, such as clothes and groceries, was flat for the second consecutive quarter. By contrast, net spending on discretionary categories rose by 1 percentage point.

"Consumer spending remains healthy, and has probably been boosted by the good weather and the country's sporting success over the summer," says Ben Perkins, head of consumer research at Deloitte. "The gap between leisure and retail spending is narrowing as consumers continue to prioritise spending on experiences, such as holidays and days out, rather than goods and services.

"With the consumer-focused economic fundamentals still showing few signs, if any, of a slowdown since the end of June, we expect retail sales growth to continue into the fourth-quarter. Consumer spending power may be challenged in 2017 and beyond, particularly when faced by the prospects of higher inflation and the start of the formal Brexit process."