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Consumer spending growth stays strong in Q3 2016

Brits put Brexit on the back burner and ramp up spending in the last days of summer

Tue Oct 11 04:15:00 EDT 2016

Consumer spending has exceeded expectations in the wake of the EU referendum result, maintaining strong momentum in Q3 2016. Spending growth rose by 3.6% year on year as the warmer weather, summer holidays and lack of immediate negative Brexit impact failed to deter consumers from spending their hard-earned cash.

While July saw lacklustre spend growth of 2.6%, August and September fared much better with spend growth rising by a stellar 4.2% in both months. Spend growth was also strong during the same period last year, rising 3.8%. This was partly due to a fairly benign economic environment and higher wage growth alongside low inflation, giving consumers a little extra in the household budget.

The Brexit effect…or lack thereof

2016 hasn’t hit consumers as hard as forecasters expected, despite a lot of unsettling news. Volatile oil prices, unstable foreign exchange markets and, notably, the EU referendum have caused uncertainty, but consumers have remained resilient. 

Confidence in the UK economy saw a significant uptick in September with 48% of consumers saying they feel optimistic about the UK economy. This is the highest figure we’ve seen since our surveys began in 2014. 70% of Brits are feeling confident in their household finances, the highest figure since Q4 2015, highlighting their determination to weather any potential economic storm.


"For the first time since Barclaycard began tracking consumer confidence in 2014, more people now tell us they feel confident about the UK economy than those who don’t, and the proportion has jumped significantly since the EU Referendum vote in June."

Paul Lockstone, Managing Director, Barclaycard

Entertainment takes the heat

The latter part of the quarter saw some of the hottest days of the year, which boosted Brits’ spending at a time when it traditionally wanes. September tends to be a time when consumers are coming back from holiday and getting back to business, yet spending soared.

Pub spend stood out, with growth up a phenomenal 17.3% in September and 14.4% in Q3 overall, likely helped by the hottest September in 100 years, the Olympics and the football season kicking off again. Dining out was in the same league; with restaurant spend up 13.6% in Q3. Three in ten of those we surveyed said they ended up spending more on experiences over the summer as a direct result of the hot weather.

Another bright spot in the quarter was cinema spend. September spend growth was up by 15.2% and Q3 overall was up by 13.3%, as long-awaited releases including The Magnificent Seven and Bridget Jones’s Baby kept fans flocking and spending.

Out of fashion?

Clothing categories fell victim to the Indian summer as Brits held off on updating their autumnal wardrobes. In September, clothing and department store spend fell by more than 4.5 percentage points from August, reaching negative terrain at -1.8% and -4.6% respectively. Taking Q3 as a whole, clothing spend just about managed to stay in positive territory at 0.5% growth. But this is a marked difference from Q3 2015, when clothing spend growth was a robust 5.1%. Womenswear spend growth was hit hardest of all this year, down -1.3% in Q3 2016.

Almost one in four (23%) consumers that we surveyed said that the warm weather discouraged them from investing in clothes for the new season. This is also in line with retail sales falling in August by 0.2% year on year after a 1.9% rise in July, according to the British Retail Consortium. This is the weakest figure for two years.

The road ahead

The short-term impact of the vote to leave the EU certainly hasn’t disheartened consumers. Brits are keeping a cool head about the situation, especially as their wallets have yet to be seriously impacted by the economic environment. Brexit media noise also quietened down in Q3, leaving consumers to enjoy an extended summer. This has resulted in consumers feeling more upbeat about the UK, European and global economies.

Despite spend growth remaining buoyant, the future isn’t necessarily guaranteed. Rising inflation due to oilprice related base effects and a weaker exchange rate, could dampen household purchasing power. Necessities such as food and energy may rise due to higher import costs, and weakening wage growth might leave consumers feeling squeezed in the near future. Almost half (47%) of consumers are expecting to spend more in the next three months due to the rising cost of goods.

With Black Friday and Christmas on the horizon, consumers are being more considered. 39% of consumers say that they expect to have a more modest Christmas than last year, and the majority (57%) will take advantage of the Black Friday and Cyber Monday discounts.

 "...Supportive factors, such as low interest rates and the likely easing in the fiscal squeeze in the Autumn Statement, should help prevent consumer spending from slowing too sharply."

Ruth Gregory, UK Economist, Capital Economics

Looking ahead we can expect consumers to carry on spending until the effects of Brexit become impossible to ignore. At this stage it’s too early to predict exactly when, and how severe, that will be.

What is consumer spending?

Consumer spending is another term for the voluntary, private exchange of money for goods and services.

"I think the Brexit vote caused a lot of uncertainty, and that will resurface going forward. But, in July and August, I think consumers concentrated on enjoying the weather and the feel-good factor from the Olympics,"

Howard Archer, Chief European and UK Economist, IHS Economics

"For the UK economy as a whole, we may be in a bit of a post-referendum sweet spot. Some of the positive developments that may cushion the impact of the vote, including the cut in interest rates which has shored up confidence, and the fall in the pound which has boosted export orders, have been felt before the adverse consequences, like rising inflation."

Ruth Gregory, UK Economist, Capital Economics