Consumer spending continued its bull run in January, growing by 4.4% year on year, as inflationary pressures led to more being spent on petrol and in supermarkets.
Data from Barclaycard, which processes nearly half of the nation’s credit and debit card transactions, shows that after a lull in December, double-digit growth in petrol spending (15.3%) and the highest growth in supermarket spending in two years (2.9%) fuelled a strong start to the year by consumers.
This drove up spending on ‘essential’ items by 5.8%, the highest level since Barclaycard started reporting on consumer spending in 2012. In-store spending was also boosted as a result, to 1%, a reversal of the 0.3% contraction recorded in December.
Uncertainty over how the UK economy might fare in the year ahead saw households row back on spending in discretionary categories, with airlines (-1.3%), electronics (-3.4%) and department stores (-1.6%) all seeing falls. This lead to a fall in the level of growth of ‘non-essential’ spend to 4% – the fourth month in a row it has decreased, with it now lower than the average 4.6% of 2016.
Spending on entertainment (8.3%) also recorded below double-digit growth for the second consecutive month, significantly lower than the 14.4% uplift in January 2016. The category was propped up by robust spending in pubs (15.6%) and restaurants (14.2%), but dragged down by lacklustre cinema spend growth (5.8%) which was up by just half the average level seen last year (10.5%)
A prevailing air of caution amongst households helped discount stores buck the trend, with sharp growth of 10.5%– the first double-digit increase in this category, which has been particularly strong over the last two years, since the EU referendum result was announced. This suggests a tightening of purse strings across non-essentials drove consumers to seek more value in everyday purchases.
Two thirds (66%) of consumers say they are now more careful to seek out value for money when making purchasing decisions. This sits within a broader fall of perceived spending power, with just over half (54%) of Brits saying they are confident in their household finances, down from 67% who said the same 12 months ago.
At the same time, two thirds (66%) say they think rising prices will increase their spending on essentials items when compared to 2016. Consumers are consequently planning adjustments in their household expenditure this year; over a third (36%) say they are less likely to spend on social occasions including meals out and trips to the cinema than this time last year.
Concern about the wider implications of the weaker pound is also having an impact on consumers’ plans for the year ahead. One in five (21%) expects to cut back on overseas holidays as a direct result of currency depreciation, while a third (32%) of consumers say that sterling fluctuations will influence how confident they feel in the wider economy.
Paul Lockstone, managing director at Barclaycard, said: “January’s uplift in spending represents a strong start to the year. Big increases in the amount spent at supermarkets and on petrol, coupled with careful spending across a number of non-essential categories, does however suggest that consumers are starting to feel the impact of inflation on their everyday lives.
“A sharp fall in consumer confidence compared to January 2016 and an increase in the proportion going to greater lengths to seek out value, is also quite telling. It suggests consumers are having to reshuffle their spending priorities for the year ahead with our research pointing to cutbacks in discretionary spend on holidays and entertainment.”
