Consumer spending slows again in June - Barclaycard

According to Barclaycard, consumer spending slowed for the second month in a row in June as cautious shoppers begin to cope with ‘new normal’ of rising prices and subdued wage growth.

• Consumer spending growth slowed to 2.5% in June as Brits were squeezed by higher expenditure on essentials (5.9%), leaving less for ‘nice-to-haves’
• Fine weather ensured the ‘experience economy’ remained a bright spot, however, with restaurants and pubs up 13.6% and 11.4% respectively
• While spending on leisure time looks protected for now, caution is the watchword as only a third of Brits are confident in the UK economy and six in ten now feel they get less for their money, compared to four in ten this time last year
• Households are ‘consciously coping’ with their diminished spending power in this new environment by frequenting more discounters and shopping online for bargains

Consumer spending growth slowed to a 15-month low of 2.5% in June, as the rising costs of essentials prompted consumers to row back on some ‘nice-to-haves’ and come to terms with a ‘new normal’ of subdued wage growth and creeping inflation.

Data from Barclaycard, which sees nearly half of the nation’s credit and debit card transactions, reveals that last month’s slowdown dragged overall growth down to 3.5% in Q2.

The three months to June tell a story of two halves. While April recorded the joint-highest figure (5.5%) since Barclaycard records began, flattered by a later Easter, May (2.8%) and June (2.5%) were much more muted as cautious consumers reined in spending.

Barclaycard’s data indicates shoppers were left with less to spend on ‘nice-to-haves’ last month after purchasing their everyday essentials. Despite slowing petrol growth (6.2%, down from a high of 19.2% in February) as prices continued to fall on the forecourt, a 6% rise in supermarkets, partially driven by higher prices, pushed up essential spending 5.9%.

It marked the fifth month this year when spending on necessities grew faster than on discretionary items (1.4%) – the reversal of a trend that has been the norm since Barclaycard began reporting figures in 2011. 

Spending on physical goods continued to slow, with expenditure on household items dropping 1.2% year-on-year. Entertainment growth, which had been in double figures since February, slowed to 6.8% albeit against a strong June last year (11.7%). However, the heat wave that swept through the UK – delivering the hottest June day since 1976 – prompted Brits to socialise with friends and family over pints and a meal out, pushing pub and restaurant spending up 13.6% and 11.4%respectively. Staying indoors proved less popular, with cinema spending down 4.3% year-on-year.

Clothing was also a bright spot, rising 5.7% as the soaring temperatures prompted Brits to update their wardrobes. Spending at discount stores continued to perform strongly, up 8.1% year-on-year. 

Barclaycard research reveals the proportion of those confident in the UK economy is now just 33%, a seven-month low. Concerns about inflation, which surfaced towards the end of last year, continue to grow as almost half (46%) of Brits say they are ‘feeling the squeeze’ due to rising prices and subdued wage growth. Six in ten (60%) believe they get less for the amount of money they spend, up from four in ten (44%) at the same time last year.

Confidence in household finances is holding steady at 69%, however, perhaps reflecting a new breed of shoppers who are starting to adapt to their diminished spending power. The consumers who are ‘consciously coping’ expect to change their shopping habits to balance the budget, with a third (35%) planning more frequent visits to discount stores and a similar proportion looking for bargains online (33%).

The money saved will enable them to prioritise experiences instead. More than four in ten Brits (46%) say they will always find money to spend on areas that are important to them, even if prices rise, with 45% citing holidays as a priority. Four in ten (40%) would ring-fence part of their income for social occasions such as going to the pub or for meals out.

Paul Lockstone, Managing Director at Barclaycard, said:

“Consumer spending growth slowed for the second month running in June, ending the quarter on a muted note. As shoppers devoted more of their budget to day-to-day essentials, they rowed back on nice-to-haves. While some aspects of the ‘experience economy’ remained protected, the cooling down of entertainment growth to single figures shows even this may be vulnerable.

“The numbers come against a backdrop of weakening consumer confidence, with many shoppers already taking action to balance their budget – ‘consciously coping’ with the new environment. As we head into the second half of the year, it will be interesting to see whether these new tactics become an unconscious part of our spending behaviour, especially given forecasts for higher inflation.”

Source: Insight DIY Team & Barclaycard Press Release.