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Consumer spending and confidence resilient in Q1 despite continued worries of increasing inflation

11 Apr 2017 12:00

  • Consumer spending rose 4.3 per cent year-on-year in the first three months of 2017, driven by a mix of splashing out on the ‘experience economy’ and higher prices on essential goods
  • Supermarket spending posted its best growth rate in eight quarters (1.4 per cent), despite the effect of an early Easter last year dampening growth in March (-0.3 per cent), while petrol hit 16.8 per cent in Q1 – the highest on record
  • Consumers prioritised leisure time with friends and family, with entertainment spend up 10.4 per cent, while physical goods such as electronics and clothing saw spending contract year-on-year
  • The proportion of those confident in the UK economy rose to 41 per cent, the second highest level recorded in the last 12 months – but the prospect of higher prices later in the year will prompt a third of consumers to shop more at discount stores to balance budgets

Essential spending continues bull run

Data from Barclaycard, which processes nearly half of the nation’s credit and debit card transactions, shows price increases were a large contributor to spending growth on essentials (comprised mainly of petrol and supermarkets), which reached a record-high 5.2 per cent during the first three months of the year. This is despite the timing of Easter, which fell earlier in 2016, depressing supermarket spend growth in March, with spend dropping 0.3 per cent year-on-year, the first decline in eight months.

Q1 2017 - essential spend growth

 A tale of two spend trends

Spending on ‘nice-to-haves’, however, remained resilient in some areas. Entertainment was particularly healthy, increasing 10.4 per cent in Q1 and marking its eleventh consecutive quarter of double-digit growth.

Q1 2017 - Entertainment spend growth
q4 2016 - entertainment spend in december grew by 7%

Not every category fared so well in Q1, however, with physical goods seeming to fall out of favour. Department stores (-3.2 per cent), electronic stores (-3.9 per cent) and men’s and women’s clothing (-1.5 per cent and -0.1 per cent respectively) all saw spending contract compared to the same period last year

March was an especially strong month for non-essentials, which rebounded to 4.8 per cent from 3.5 per cent in February. Consumers splashed out on entertainment (11.6 per cent) as they welcomed the UK’s fifth-warmest March on record with visits to pubs (12.5 per cent) and restaurants (12.2 per cent).

q4 2016 - entertainment spend in december grew by 7%

Confident for now…

Nonetheless, the propensity to continue spending on social occasions and travel plans shows that consumers have been, on the whole, balancing their monthly budget. This is supported by a healthy majority (70 per cent) expressing confidence in their household finances, with almost six in ten (57 per cent) also feeling confident in their ability to spend more on non-essential items.

This buoyant approach to spending coincides with a rise in the proportion of consumers expressing confidence in the UK economy, which – after a steady climb starting from October 2016 – now stands at 41 per cent. The figure represents the second-highest level recorded in the last 12 months and a seven per cent increase on the same month last year.

…concerned for the future

Consumers are, however, feeling less upbeat about the near future, with the inflationary pressures of recent months giving them cause for concern. Over half (52 per cent) of Brits are more worried about the cost of day-to-day items than they were this time last year, with nearly three quarters (74 per cent) citing a more expensive weekly shop as the reason.

Looking ahead, six in 10 (60 per cent) consumers say they expect to make changes to how and where they spend their money over the remainder of the year. Suggesting a bid to offset the increase in prices, a third of shoppers (34 per cent) intend to bag more bargains in discount stores in order to maintain a balanced budget in the coming months.

“It was another strong month and quarter for consumer spending, but the headline figure again masks a story of consumers making small, yet necessary, adjustments to their spending to accommodate the rising cost of day-to-day items.”

Paul Lockstone, Managing Director at Barclaycard

“Robust growth in spending on ‘nice-to-haves’ suggests consumers are still willing to treat themselves, especially on experiences with friends and family.”

Paul Lockstone, Managing Director at Barclaycard

“Although the triggering of Article 50 is a major step along the road to Brexit, the lack of reliable news on the outcome of the negotiations might mean that companies, households and markets simply ignore the noise and wait for firm announcements to be made.”

Ruth Miller, UK Economist, Capital Economics

"There are increasing signs that consumers are reining in their spending as their purchasing power is squeezed. That will likely continue to be the story over the coming months.”

Howard Archer, Chief European and UK Economist, IHS Global Insight