Spending growth up year on year, but consumer confidence declines

Consumer spending growth rose 2.8 per cent year-on-year in November, maintaining the muted levels seen throughout the second half of 2017. With inflation running at 3 per cent, it marked the second consecutive month where household expenditure contracted in real terms.

• Consumer spending grew 2.8 per cent year-on-year in November – below the annual rate of inflation of 3 per cent and maintaining the muted levels seen throughout the second half of 2017
• Spending on non-essentials saw a slight rebound on October as entertainment posted its highest growth rate since July 2017
• Confidence in household finances fell from 64 per cent to 56 per cent month-on-month as inflation and the first interest rate rise in a decade weighed on sentiment
• Value-seeking Brits plan to take advantage of sales periods to maximise their budget with Black Friday 2017 proving popular, recording a 32 per cent rise in transaction volumes

Data from Barclaycard, which sees nearly half of the nation’s credit and debit card transactions, reveals that consumers continued to manage their spending cautiously following months of rising prices and stagnant wage growth. 

Tough times endured on the high street with in-store spending at -0.1 per cent, the seventh straight month in negative territory. Although online spending posted a double-digit increase of 10.8 per cent, this is down from an August high of 15.7 per cent, with November marking the third successive month in which growth in online spend has slowed.

Essential spending growth of 3 per cent was broadly in line with October’s figure (2.9 per cent). Growth in non-essentials, however, rebounded as consumers tweaked their allocation of spending on the ‘nice-to-haves’, rising 2.8 per cent from 2.2 per cent.

Airlines – which had posted a record-high growth rate of 10.9 per cent in October – fell out of favour, contracting 2.8 per cent year-on-year. Instead Brits opted to spend on leisure time with friends and family as the nights drew in, helping pubs (11 per cent) and restaurants (12.1 per cent) return to levels seen earlier this year, after a brief slowdown in the three months to October. This pushed up entertainment spending to 9.5 per cent, its best performance since July.

Electronic stores meanwhile finally stemmed 12 straight months of decline to enter positive territory, up 0.9 per cent year-on-year – possibly the result of shoppers upgrading to the newly released iPhone 8, iPhone 8 Plus and iPhone X. Men’s clothing also saw its best performance since July 2016 (8.1 per cent), although it wasn’t enough to revive clothing spend overall (-0.9 per cent).

November’s muted spending figures reflect the cautious mood of the nation. Only 30 per cent of consumers feel confident in the UK economy, down from 37 per cent at the end of September. A gap of 30 percentage points now exists between those who are confident and those who are not – the second widest since Barclaycard began tracking consumer confidence in 2014.

Confidence in household finances has also decreased, falling from 64 per cent in October to 56 per cent last month as inflation and the first interest rate rise in a decade weighed on consumer sentiment. Brits plan to continue spending conservatively, with a quarter (24 per cent) indicating they are less willing to splash out on non-essential items due to the rate hike, and a third (32 per cent) worried that rising prices – such as on food and drink – will force them to spend more on Christmas this year than they did in 2016.

Many savvy consumers, however, are trying to maximise their budget – indicated by a flurry of re-mortgaging activity from September in anticipation of the interest rate rise, and the fact that one in five (20 per cent) shoppers say that they plan to spend more on discounts during seasonal sales, from Black Friday and Cyber Monday through to Boxing Day.

Bearing this out, Barclaycard saw a 32 per cent rise in transaction volumes and a 7 per cent increase in values processed on Black Friday 2017 – with a record-high 998 transactions processed per second this year, beating the high of 771 transactions per second on Black Friday 2016.

Paul Lockstone, Managing Director at Barclaycard, said:

“Consumer sentiment has deteriorated over the last couple of months after a prolonged period of falling purchasing power. Against this backdrop, it’s not surprising that consumers continue to spend conservatively, leading to a second successive month of contraction in real terms. 

“While entertainment spend brought some welcome relief, growth on essentials outstripped expenditure on nice-to-haves for the third month in a row, indicating that shoppers are prioritising carefully. Nevertheless, the search for value continues with Brits seeking sales and discounts, making the most of their budget during the festive season – as we saw with a strong performance on Black Friday.”

Source: Insight DIY Team & Barclaycard press release.

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