Two thirds feel that the economy will worsen in 2026

A KPMG survey has found that two-thirds of people believe the economy is worsening.  Despite almost no change in how households feel about their own finances throughout the past year, 2025 saw a steep decline in sentiment towards the economy. Entering 2026, the majority of people (56%) feel secure in their personal finances, a 1% decrease from 57% at the start of 2025. But concern about the health of the UK economy grew during 2025, starting the year with 43% saying that the economy is worsening and ending the year at 58% (albeit improving from 62% in Q3).

This downbeat opinion from the majority of consumers continues to impact spending, with consumers who feel the economy is worsening taking contingency action, including half (49%) saying they are cutting discretionary spend (down from 56% in Q3). 36% saying they are saving more (down from 58% in Q3). 34% saying they are deferring big-ticket purchases (down from 38% in Q3). Whilst a fifth (20%) are less inclined to leave their current job (up from 19% in Q3).

The cost of groceries (81%), utilities (75%), and eating or drinking out (53%) are the three most common reasons that people feel that the economy is worsening. Consumers aged 65 or over are most likely to say that the UK economy is getting worse (at 70%), and those aged 35 to 44 are most likely (at 24%) to say it’s improving.

Reflecting on what their current feeling of financial security means for their discretionary spending plans in 2026, among all 3000 consumers polled, 47% plan to spend the same amount on things they want in 2026 than in 2025. 27% plan to spend less on things they want in 2026 than in 2025. 13% plan to spend more on things they want in 2026 than in 2025, whilst 13% are not sure.

Commenting on the findings, Linda Ellett, Head of Consumer, Retail and Leisure for KPMG UK, said, “It is good news that the majority of consumers feel financially secure and there are welcome signs of targeted discretionary spending plans. But a landscape of consumers adjusting to higher household essential outgoings and spending caution due to perception of a worsening economy is set to continue into 2026.

“Annual consumer spending growth looks set to sluggish again, with available discretionary budget prioritised – particularly for the likes of holidays and home improvements. Competition among consumer businesses for the remaining share of the available consumer spend will be fierce, with an ever-sharpening focus on business models, efficiencies and profit margin.”

42% of consumers say they will buy no big-ticket items in the first quarter of 2026. Among those planning to spend, putting money toward a holiday is the most common (25%) plan – and is also the thing that consumers would be most likely to put their money toward if they had more discretionary spending power during 2026.

The increasing use of AI by consumers was one of the key themes of 2025 and looks set to grow further in 2026. A fifth (19%) of consumers say they will use AI to track prices, and also product search, making these the two AI uses they are most open to engaging with when shopping in 2026. There are also signs of growth for social commerce, with one in ten (10%) consumers saying they will use social media more to discover new products or services than in 2025.

The circular economy also looks set for a boost, with a fifth of consumers (21%) saying they are likely to buy more second-hand goods in 2026 than last year – rising to a third (31%) among 18- to 24-year-olds.

Linda Ellett concluded, “The growth of AI searching and social commerce looks set to continue in 2026, with consumers, particularly of younger age groups, becoming accustomed to finding products this way and businesses having to adapt their respective marketing strategies. Pre-loved purchasing will also remain popular and retailers will have to continue to consider their involvement in the circular economy and the potential hit to new clothing and footwear sales.”

Q1 spending plans, including on:

• 14%: Minor home improvements.
• 10%: Major home improvements.
• 10%: Furniture.
• 10%: Home appliance(s).
• 9%: Personal technology.
• 8%: Mobile phone.
• 7%: Home electronics.