UK consumption has suffered a double dip in recent years. Real household consumption collapsed by 12.7% in 2020, staging a partial recovery in 2021 and 2022, only to fall again in 2023 and 2024.
These developments have left consumption well below its pre-pandemic trajectory: Cebr estimates that household spending in 2025 would have been £260 billion higher had the pre-pandemic trend continued.
Now, with consumption returning to growth, up an estimated 0.9% in 2025, the question remains whether this could mark the beginning of a sustained recovery.
The lost years
The initial pandemic shock was severe for UK consumers, with real spending falling at a sharper rate than similar metrics in the US or the EU. The reasons for the decline were evident: they were a direct consequence of lockdowns, while also coinciding with Brexit. As such, a return to growth appeared easily within reach once these shocks dissipated.
The second dip was arguably more troubling. After rebounding in 2021 and 2022, real consumption fell again, by 0.3% in 2023 and 0.1% in 2024, as households absorbed a succession of blows: an energy crisis, the sharpest inflationary episode in a generation, and the aggressive monetary tightening that followed.
Rather than spending, households saved. The savings ratio averaged 10% of disposable income in 2024 and 2025, well above the five-year pre-pandemic average of 6.5%. This reflected households’ desire to build savings buffers to guard against future uncertainty.
Amidst lower spending and higher saving, there is a growing fissure between where consumption is and where it might have been. Had household spending continued along its 2009-19 trend, it would have been nearly 15% higher last year, representing an additional £260 billion in activity. With similar shortfalls observed in other years, the result is an extended period of forgone spending – particularly on discretionary items such as restaurants, hotels, and other forms of leisure activities – that the economy has yet to recover.
Source: ONS, Cebr analysis
A turning point for consumers?
However, there are some reasons for cautious optimism. 2025 is set to mark a return to consumption growth after two years of contraction, with Cebr expecting growth to stand at a modest 0.9%. At the same time, consumers are entering 2026 with significant latent spending power: elevated saving ratios over recent years have built a cushion, while household debt has fallen steadily since 2022 and now stands at its lowest level relative to disposable income in decades.
Monetary policy is also turning supportive. With inflation easing and the labour market cooling, Cebr expects the Bank of England to cut rates twice in 2026. These cuts alone will not close the gap with the pre-pandemic consumption trend nor fix the UK’s structural problems, but they will directly affect household spending power, with two channels being especially key.
The first is mortgages. Mortgage debt dwarfs other forms of household borrowing, with an outstanding value exceeding £1.7 trillion. Although around 85% of outstanding mortgages are fixed-rate, most are fixed for only two years. As these deals mature, households will refinance them at lower rates, reducing their monthly outgoings. Cebr expects average rates on two-year fixed mortgages for borrowers with a 25% deposit to fall from 4.3% in 2025 to 3.9% in 2026, freeing up discretionary income that can flow back into consumption.
The second channel is more indirect. Lower rates will ease pressure on the public finances by decreasing the cost at which the government can borrow: the OBR estimated that a one percentage point fall in the Bank Rate would improve the fiscal position by approximately £16 billion. With debt interest having absorbed over 8% of public spending in 2024/25, this relief could reduce the need for further fiscal tightening that would otherwise weigh on household incomes. Many of the tax policy changes announced in the recent Budget were backloaded, taking effect towards the end of Labour’s term in parliament. Should fiscal headroom expand, the government may face pressure to soften or U-turn on some of these measures, in turn supporting disposable incomes.
Future outlook
The £260 billion gap between actual consumption and its pre-pandemic trend is unlikely to close anytime soon. Doing so would require a sustained period of above-trend consumption growth, an unlikely development given the economy’s persistent structural weaknesses. Consequently, we project a widening of the gap between the actual path of consumption and the counterfactual of the pre-Covid trend, reaching an estimated £390 billion by 2030.
However, there are some reasons for optimism. After a post-pandemic double dip, the return to growth in 2025, however modest, is an early sign that a recovery may be underway. Household balance sheets are healthier than they have been in years, and easing monetary policy is set to relieve pressure on household incomes and the public finances. If confidence holds, a sustained recovery in spending could be in its early stages, bringing benefits to the high street and wider economy.
