Held at our London headquarters, the day brought together leading strategists and sector experts to examine an economy many expected to falter but which continues to hold firmer than anticipated. What emerged was a portrait of an economy supported by one critical pillar: employment.
Labor market resilience as recession hedge
One of the most compelling narratives threading through the day was the role of tight labor markets as an economic shock absorber. Peter Schaffrik, RBC's Chief European Macro Strategist, presented a provocative thesis: despite broader economic challenges - collapsing productivity, declining investment in Europe, and elevated debt levels - consumption is not the economy's weakest link. The reasoning is straightforward yet powerful. Employment-to-population ratios stand at record highs, particularly in the euro area. With people employed and drawing income, consumption continues, creating a virtuous cycle that insulates the consumer-facing economy from the recessionary dynamics one might otherwise expect.
The data supported this view. The euro area's unemployment rate sits at approximately 6 percent - effectively full employment by historical standards. While the UK has seen a marginal uptick in recent months, Schaffrik emphasized this increase reflects new entrants to the labor market rather than layoffs, a crucial distinction suggesting structural resilience rather than cyclical deterioration.
"With the labor market remaining tight, we probably have an environment where wage growth is still going to be there and consumption is going to be the one thing that's going to hold our economies up."
Peter Schaffrik, Chief European Macro Strategist, RBC Capital Markets
Looking ahead, this tight labor market carries important implications for wage bargaining. With unions preparing to renegotiate in the coming quarters, workers have leverage - and wage growth is likely to accelerate, particularly in euro area economies with multi-year contract cycles. This wage acceleration, paradoxically, represents positive news for consumer-facing businesses: more money in workers' pockets translates directly into spending.
Differentiated consumer behavior and emerging vulnerabilities
Tom Gladstone from strategy firm OC&C offered a more nuanced perspective on consumer sentiment and spending patterns that complicates the optimistic labor market narrative. While headline consumer confidence in the UK has declined over the past three to four months, he carefully calibrated this decline: it represents roughly one-third the magnitude of shocks seen during COVID or the Ukraine conflict. This might suggest resilience, yet the distribution of weakness tells a different story. The decline is concentrated among affluent households and younger consumers - two traditionally resilient demographic cohorts. This reversal has profound implications for discretionary sectors like travel and leisure, where affluent households disproportionately drive demand. More concerning, consumers appear to be psychologically scarred by repeated shocks.
"You've got a smaller inflation impact coming through than previously, but I'd probably expect for each point of inflation that comes through a slightly bigger consumer response than previously because a lot of people have already stressed themselves out."
Tom Gladstone, Partner, OC&C
The consumer is spending, yes - but from a position of heightened anxiety. Savings rates remain structurally elevated compared to pre-COVID baselines, suggesting consumers are prioritizing security over spending. This bifurcation - resilient employment supporting spending, yet sentiment-driven caution limiting upside - defines the consumer landscape for the near term.
What emerges is a picture of differentiated consumer behavior across categories and channels. Traditional discount retail continues to benefit from trading-down patterns, but the beneficiaries have shifted. Fast-fashion retailers like Temu and Shein are capturing share that might previously have gone to discount grocers. Simultaneously, premium own-label ranges are performing well, as are resilient categories like consumer health, pet products, and premium food ingredients. For most European economies, Gladstone cautioned, consumer spending growth will likely remain subdued over the next year, with a potential pickup thereafter - but this "jam tomorrow" narrative, he wryly observed, has been pushed forward repeatedly each year, making it prudent to temper expectations.
Volatility as a profit mechanism in supply chains
Beneath the consumer spending discussion lay a darker undercurrent: the weaponization of supply chain volatility. Chantel McRoberts from Drewry brought sharp focus to the cost side of the consumer equation, revealing how geopolitical uncertainty has been transformed into a mechanism for extracting premium pricing. The Middle East conflict triggered an immediate escalation of fuel prices, which by February 2026 rippled through ocean freight markets. What began as a fuel-driven spike has evolved into a more complex dynamic: rates reached their highest levels in 18 months as shippers front-loaded cargo in anticipation of further disruptions, creating an artificial early peak season.
The critical issue is not merely elevated rates but the opacity and double-charging embedded in emergency bunker adjustment fees. When fuel costs spike between quarterly contract adjustment periods, carriers impose emergency surcharges on top of scheduled BAF adjustments, effectively causing shippers to pay inflation premiums twice. This has created substantial friction between retailers and carriers.
"Volatility and supply chains don't really mix very well, and this is what happens - the rates go up. When fuel goes up, the rates skyrocket, but when it's coming down it's like a feather."
Chantel McRoberts, Head of DSCA Advisory, Drewry
Critically, supply-demand fundamentals remain structurally oversupplied. The Drewry Supply Demand Index sits at 88 for the remainder of the year - a level indicating excess capacity should theoretically drive rates lower. Yet volatility is overriding traditional market dynamics. When the index drops to 77 next year, shippers should theoretically secure better rates, but geopolitical uncertainty has weaponized volatility, allowing carriers to extract premium pricing during moments of perceived risk. For retailers navigating this landscape, the message is clear: oversupply on paper provides no protection when fear takes over.
Air freight presents a different profit dynamic. Unlike ocean freight, where shippers are locked into 12-month contracts, the air freight market saw procurement teams pause negotiations mid-bid. They've opted instead to access spot rates, accepting higher costs for flexibility. This signals underlying demand confidence but also recognition that locking in elevated contract rates would be commercially unwise. Capacity constraints appear manageable as summer passenger travel peaks, yet the asymmetry remains: carriers profit during uncertainty; shippers absorb the costs.
Rising fiscal risk and political uncertainty in the UK
Woven through Schaffrik's analysis was a cautionary note about the UK's fiscal position, adding a layer of political-economic risk to the consumer outlook. Long-duration UK yields stand significantly above G7 peers, reflecting market concerns about fiscal sustainability. With a budget deficit around 4 percent and debt metrics that have deteriorated sharply since the financial crisis, the UK faces a fiscal tightrope. Any new government must balance the need for growth-supporting investment against the reality that profligate spending risks market punishment.
This fiscal constraint creates a second headwind for UK consumers alongside the sentiment decline already documented. Unlike Germany, which has been able to loosen fiscal policy, the UK must navigate a world where austerity-lite is the only politically viable path. For consumer-facing businesses, this political-economic backdrop adds uncertainty beyond the typical cyclical concerns.
AI as operational catalyst, not existential threat
Amidst these headwinds, Gladstone's discussion of artificial intelligence offered a more optimistic lens. AI adoption rates vary sharply by age and demographic - ChatGPT usage reaches 30-40 percent among under-35s but drops to 5-10 percent among over-55s, following the adoption curve of prior technologies. For consumer goods businesses, AI deployment is concentrating on practical areas: operational efficiency through logistics optimization, search journey optimization, and innovation acceleration. Notably, companies are reconsidering their marketing funnel, recognizing that ChatGPT is not the first step in search but rather a research and education layer that sits above traditional awareness. This suggests a shift in brand spending toward upper-funnel activities to maintain visibility in an AI-mediated discovery environment.
Travel and intermediaries face more existential questions around disintermediation, yet Gladstone struck an optimistic note: rather than fearing wholesale elimination, these players are experimenting with embedding themselves within AI platforms. The disruption is real but manageable for well-positioned businesses. For retail and leisure, AI offers immediate wins through better forecasting, faster product development, and enhanced customer service - areas where investors remain notably enthusiastic. Interestingly, Gladstone observed that some investors are reconsidering their long-standing preference for technology exposure, noting that consumer areas with physical products and real brands carry less disruption risk than some pure-play tech companies facing AI-driven business model shifts.
"There's still some hot areas within that," he explained.
"Actually we've probably seen in that some of those areas with AI have actually got much more extensive disruption risk than consumer areas where you have got in many cases physical products that still need to get to consumers and brands that are real."
Tom Gladstone, Partner, OC&C
Conclusion: Resilience built on fragile foundations
The 2026 European Consumer Conference painted a picture of resilience built on fragile foundations. The labor market remains the economy's principal support system, sustaining spending and preventing recession despite productivity stagnation and investment shortfalls. Yet this single pillar must bear increasing weight: sentiment-scarred consumers are cautious, supply chain costs are elevated and volatile, and fiscal constraints limit policy options - particularly in the UK. AI offers operational improvements and cost savings for well-managed retailers, but the transition will be uneven, favoring those with scale and agility.
For investors and retail leaders, the message is clear: the consumer economy is not in crisis, but it is under pressure from multiple vectors. Success will require navigating labor market tightness, managing inflation pass-through in a volatile supply environment, and leveraging AI for competitive advantage while maintaining brand relevance in an uncertain consumer landscape.
