Consumer confidence has rallied in the third quarter of 2017, increasing by three percentage points from Q2 2017 after three consecutive quarters of decline, according a latest Consumer Tracker report by Deloitte.

The quarterly survey of 3,000 UK consumers, carried out between 15 and 16 September 2017, saw overall consumer confidence rise to 7% in Q3 2017, up from 10% the previous quarter. It is the first time consumer confidence has seen a quarterly rise since Q3 2016.

The rise in consumer confidence was driven by a quarter-on-quarter increase in five out of the six measures which make up the confidence index. In particular, consumer confidence in job security (up two percentage points), job prospects and career progression (up five percentage points) has seen significant growth since Q2 2017, returning to levels last seen before the EU referendum in 2016.

Despite the rise in optimism, rising inflation is still taking its toll on consumer budgets. Household disposable income is a key area of worry, with net confidence falling by nine percentage points year-on-year, to 21%.

Ian Stewart, chief economist at Deloitte, said: “The rebound in consumer confidence testifies to the resilience of the UK consumer in the face of surging inflation, Brexit uncertainties and the prospect of a higher interest rate. The bouncing consumer sentiment mirrors a similar recovery in business confidence since June’s election.

“However, it remains to be seen whether or not this uptick in confidence represents the start of an upward trend. Consumers face growing headwinds with disposable income shrinking, the potential of a first interest rate rise in more than ten years and banks tightening up on consumer lending.”

In addition to concerns over household disposable income, Deloitte’s Consumer Tracker also found that consumers are increasingly pessimistic about their levels of debt, with net confidence in this category falling by four percentage points in the last 12 months. As a result of these debt pressures, spending on discretionary categories has fallen by two percentage points since Q3 2016. This fall has been driven by significant year-on-year declines for a number of discretionary sub-sectors including electrical equipment (down three percentage points), going out, restaurants and hotels (all down four percentage points). Meanwhile, consumer expectations around spending on essentials in the next three months have increased by five percentage points during the same period.”

Ben Perkins, head of consumer business research at Deloitte, commented: “Rising levels of personal debt, commitments to pay it off, and the growing disparity between earnings growth and inflation in the last year have created a squeeze on disposable incomes. Consumers are feeling the pinch and are having to make a choice between ‘must have’ and ‘nice to have’ purchases. As we enter the crucial trading quarter for the industry, retailers should expect to see further signs of spending shifting towards essentials such as groceries, utilities and housing over the next three months.”