UK consumer spending outlook H2 2026

Key takeaways

The Iran crisis has hit consumer products and retail far less than we feared. In the second half of the year, there’s cautious room for optimism: on average, we expect average YoY monthly spending growth to reach 0.7% in our central case. 

However, headline growth masks a widening divide between financially resilient households and those still under pressure. The businesses that outperform in H2 2026 will be those that understand which consumer groups are growing, which are contracting, and how demand is shifting beneath the surface. 

Escalation in the Persian Gulf initially threatened a renewed energy and inflation shock, but the economic impact has so far proved more contained than anticipated, given the more muted commodity market response. 

That is the good news. The challenge is that not all consumers are experiencing the economy in the same way. Some household groups are increasing spending, while others are already cutting back. 

What has changed since H1?

Baringa’s central case now points to consumer spending monthly YoY growth of around 0.7% in H2, with the downside scenario improving materially to remain positive at 0.09% monthly YoY growth. 

Three things are driving this:

1. Fuel is the biggest source of improvement. In H1, the downside scenario assumed fuel costs could rise by around 30% relative to the base. Since then, energy prices eased from their initial peaks, and as such, H2 downside assumes a smaller increase.
2. The interest-rate outlook has become more supportive, with the Bank of England now expected to hold rates rather than tighten further. 
3. The labour market downside has moderated, with the H2 downside assuming a smaller rise in unemployment than H1. 

Risks have not disappeared. Further escalation and disruption in the Persian Gulf could renew pressure on fuel and utility costs, reversing some of the improvement in household finances.

2026 Consumer Spending Outlook

_{Source: Baringa UK Consumer Spending Model}

Why the national average is misleading

Spending growth is highly asymmetric across household types. Most segments retain positive spending growth in H2, but the aggregate picture masks a significant divergence in households' ability to absorb the economic shock.

Young single professionals lead at 1.88%. Double income, no kids households follow at 0.95%, contributing the largest absolute monthly increase at £113 million. At the other end, spending falls for single parents at -0.43%, graduate and young professional renters at -0.20%, and solo and low income households at -0.10%.

Looking beyond spending growth alone, the analysis highlights three broad consumer groups: 

• Predictable premiums. Affluent homeowners, retired households and double-income households, combining positive growth with lower volatility.
• Growth bets. Young single professionals and young families, driving strong growth but likely to retrench more sharply in a downturn.
• High risk. Renters, single parents and the most financially constrained households, already seeing spending contract.

Central H2 consumer segment spending change from base (% and absolute monthly values)

What are consumers protecting, and what are they cutting?

Households are not cutting uniformly. They are concentrating reductions in categories that can more easily be delayed or forgone.

Non-discretionary categories see relatively modest declines, with spending growth around 0.5 to 0.7 percentage points weaker than the pre-crisis forecast. Discretionary spending absorbs more of the adjustment, averaging 0.9 percentage points weaker.

Leisure activities contract the most. Out of home entertainment falls furthest at -1.37%, followed by the purchase of new cars and vans and gym and sports activities, both at -1.02%.

What could still change the picture?

On the downside, renewed pressure on global oil and gas supplies would push fuel and energy costs higher. The impact would be highly uneven. Solo and low-income households and single parents face cost increases equivalent to around 7-8% year on year, compared with less than 2% for high-income outright owners.

On the upside, consumer confidence has rebounded following the change in political leadership, the "Burnham bounce". The report notes that a 0.5 percentage point reduction in national saving rates could deliver a c.£300 million increase in spending.

Frequently asked questions

How much will UK consumer spending grow in H2 2026?

Baringa's central case points to UK consumer spending growth of around 0.7% in H2 2026. The downside scenario remains marginally positive at 0.09%, and the upside scenario reaches 1.1%. These figures represent the expected average year-on-year monthly spending run rate under current economic assumptions, rather than cumulative growth over H2 2026.

Which household segments are spending more, and which are spending less?

Young single professionals show the strongest growth at 1.88%, followed by double income, no kids households at 0.95%. Spending contracts for single parents at -0.43%, graduate and young professional renters at -0.20%, and solo and low income households at -0.10%.

Which spending categories are most exposed?

Discretionary categories absorb most of the adjustment, averaging 0.9 percentage points weaker than the pre-crisis forecast. Out of home entertainment contracts furthest at -1.37%. Non-discretionary categories such as food and communication decline more modestly, at around 0.5 to 0.7 percentage points weaker.