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Inflationary pressures characterise a year of caution for consumer spending

Tue Jan 02 03:00:00 EST 2018

  • Overall spend grew 3.5 per cent year-on-year in 2017, in line with 3.6 per cent growth the previous year, boosted largely by an uplift in the first half of the year driven by rising prices
  • Amid changes in the wider economic and political picture, consumer spending also ebbed and flowed, ranging from a record increase of 5.5 per cent in April to slower growth in October (2.4 per cent) and November (2.8 per cent) – both months dropping below the annual rate of inflation, equating to a spending decline in real terms
  • Despite this, Brits steadfastly managed the squeeze of rising inflation and stagnant wage growth by adjusting spending priorities, resulting in a majority of consumers continuing to feel confident in their household finances overall
  • One bright spot throughout 2017 was continued consumer appetite to spend on the ‘experience economy’, a trend which started in 2016.  This drove overall entertainment up 10.2 per cent year-on-year

Consumer spending fluctuated in 2017 as rising prices forced Brits to spend more on essential items, with expenditure on ‘nice-to-haves’ shifting month-on-month as households made small, yet necessary, tweaks to balance their budgets.

Britain ‘feels the squeeze’ of inflation

According to the annual analysis of UK consumer spending by Barclaycard, which processes nearly half of all credit and debit card transactions in the UK, consumer spending growth got off to a strong start in 2017, with Q1 recording the highest quarterly growth rate (4.3 per cent) of the year. This was a direct impact of rising prices, which drove notable uplifts in spending on essential items and culminated in a record 11.4 per cent spent on this category in April – although this was also driven in large part by the timing of Easter this year.

While spending on essentials subsequently steadied in the latter half of the year, the impact of these early uplifts contributed to essential spend growth jumping from 0.8 per cent in 2016 to 4.6 per cent in 2017, with supermarkets (3.4 per cent) and petrol (8.9 per cent) both rebounding from negative territory of -0.1 per cent and -0.4 per cent respectively in 2016 as grocery and fuel bills rose steadily throughout the year.

By May, consumer sentiment reflected the impact of rising prices on perceived spending power, with more than half (52 per cent) of Brits admitting to ‘feeling the squeeze’ due to a combination of inflation and subdued wage growth. 46 per cent of shoppers reported feeling the same way the following month, rising to 47 per cent in July, August and September.

Concurrently, the proportion of those confident in their household finances ranged from the lowest yearly point of 53 per cent in May, as consumers cautiously responded to the sharp rise in prices, to 64 per cent in October, following a few more comfortable months of coping with the changes.

Discretionary cutbacks and a rise in value-seeking behaviour

Barclaycard recorded slower overall spend growth in the second half of the year, characterised by a series of minor yet necessary adjustments made by cautious consumers to better balance the books. Shoppers cut back on ‘nice-to-haves’, particularly in October when inflation hit 3 per cent, with cinema and clothing contracting 7.8 per cent and 4.1 per cent respectively during that month. 

Spending on non-essentials in general remained muted towards the end of the year, resulting in an overall drop in discretionary expenditure growth from 4.5 per cent in 2016 to 3.2 per cent in 2017. Savvy shoppers instead increased efforts to maximise their budgets in August, with 61 per cent saying they were seeking out more value for money in the purchases they made – this rising to 66 per cent who said the same in November. Black Friday proved particularly popular for bargain-hunting Brits, with Barclaycard processing – at its peak – a record-high 998 transactions per second this year, beating the high of 771 transactions per second on Black Friday 2016.

Experiences remain a top priority

Despite cutbacks elsewhere, the experience economy proved a clear winner in 2017. Spending on entertainment grew by 10.2 per cent across the year, boosted in particular by spending in pubs and restaurants which saw double digit year-on-year increases of 12.2 per cent and 12.6 per cent respectively in 2017.

Cinema, event ticket and theatre spend – a big winner in 2016 with overall growth of 11 per cent – saw a greater range of peaks and troughs in 2017, which contributed to slower, yet robust, overall growth of 6.6 per cent. Key releases including tickets for Ed Sheeran’s Divide tour in February and highly anticipated films such as Dunkirk and Despicable Me 3 in July boosted spending by 23.3 per cent and 24.3 per cent respectively in those months, as consumers continued to prioritise discretionary spend on leisure time with friends and family, rather than accumulating material goods.

Looking ahead to 2018, consumers tell us they are likely to continue to spend conservatively and maintain a measured approach to monthly budget allocation. Reflecting on the latest interest rate rise, three in 10 (31 per cent) Brits recognised a need to make some changes to everyday spending, with actions ranging from going to discount stores more often (53 per cent) to buying fewer luxury items (19 per cent).

Paul Lockstone, Managing Director at Barclaycard, said:

“Consumer spending grew 3.6 per cent in 2017, a figure which on the surface looks robust. It masks a story, however, of consumers ‘consciously coping’ with a sustained period of rising prices and stagnant wage growth. In a bid to balance essential and discretionary spending, we saw Brits making a series of minor tweaks to everyday expenditure to balance the books amid wider economic concerns.

“Confidence levels throughout the year show that consumers are continuing to watch the external environment closely and adjusting accordingly. With inflation hitting a near six-year high in November, it will be interesting to see how this impacts spending priorities in the early part of 2018, as consumers recover from a further squeeze this Christmas.”

Spending in detail in 2017 (2016 figures in brackets)

 

Level of spending growth

Total retail spending

3.5% (3.6%)

Core categories

 

Clothing

1.4%

Entertainment

10.2%

Food & Drink

3.8%

Household

-0.4%

Travel

3.3%

Detailed categories

 

Airlines

2.4%

Cinema and Theatre

6.6%

Department stores

-3.6%

Discount stores

7.1%

DIY stores

1.5%

Electronic stores

-5.00%

Family clothing

2.5%

Garden centres

3.5%

Hotels

7.7%

Men’s clothing

2.6%

Petrol

8.9%

Pubs

12.2%

Restaurants

12.6%

Supermarkets

3.4%

Women’s clothing

-2.6%

Online

14.0%

In-store

-0.1%

Essential

4.6%

Non-essential

3.2%

Notes to editors

For more information please contact Charlotte Brocklebank on 0207 331 5478 or charlotte.brocklebank@cohnwolfe.com 

Barclaycard processes nearly half of all card transactions in the UK. Our spending data is based on transactions from our UK credit card business, UK payment acceptance business and spending on Barclays debit cards. 

About Barclaycard

Barclaycard, part of Barclays Bank PLC, is a leading global payment business that helps consumers, retailers and businesses to make and take payments flexibly, and to access short-term credit and point-of-sale finance. In 2016 we processed over £250bn in transactions globally. Barclaycard is a pioneer of new forms of payment and is at the forefront of developing viable contactless and mobile payment schemes for today and cutting-edge forms of payment for the future. We also partner with a wide range of 

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