Months of ‘feeling the squeeze’ dampens consumer sentiment

· Consumers spent 3.5 per cent more last month compared to July 2016, as sustained higher prices drove supermarket spending

· While Brits managed to ring-fence part of their budget for their favourite ‘nice-to-haves’, months of ‘feeling the squeeze’ have them considering the future with greater trepidation – only 28 per cent now feel confident in the UK economy, a record low
· Four in 10 consumers (43 per cent) indicate higher inflation has led them to change their everyday spending habits, with four in 10 (44 per cent) buying fewer treats for themselves
· Despite this pressure, shoppers still prioritised the experience economy, boosting entertainment spend 12.5 per cent

Consumer spending grew by 3.5 per cent year-on-year in July, the highest figure since April, as the cost of everyday groceries continued to push up spending in supermarkets. Shoppers reported another month of ‘feeling the squeeze’ of higher inflation and subdued wage growth, dampening confidence in the wider economy.

Data from Barclaycard, which sees nearly half of the nation’s credit and debit card transactions, also shows, however, that consumers received some respite from a continued drop in petrol prices, which have fallen from an average of 120p per litre at the start of the year to 113p last month. As a result, expenditure on the forecourt increased just 2.5 per cent in July, the lowest figure since August 2016.

Against this backdrop, consumers carefully budgeted for their priorities. This included the ‘experience economy’, or spending on leisure time with friends and family, as entertainment rose 12.5 per cent.

Expenditure on cinemas and tickets grew 24.3 per cent as Brits flocked to see new blockbusters such as Dunkirk, Baby Driver and Despicable Me 3, and snapped up tickets for the 2018 tours of Ed Sheeran and The Killers. In addition, restaurants (13.3 per cent) and pubs (11.8 per cent) remained robust as Brits enjoyed the sunny summer weather.

One category that fell down the priority list was clothing, which contracted 0.3 per cent year-on-year – in contrast with a particularly strong June (5.7 per cent). Women’s clothing suffered in particular, down 4.9 per cent on July 2016.
As consumers increasingly felt the pressure from months of higher grocery prices and re-allocated their budget to make ends meet, consumer sentiment also weakened. The proportion of those confident in the UK economy fell to 28 per cent in July, the lowest figure recorded since Barclaycard began its research in 2014, and a continuation of the downward trajectory that started in March.

Proportion of consumers confident in the UK economy

The outlook on spending power has also darkened; confidence in household finances fell to 56 per cent from 69 per cent in June, and the ability to spend more on non-essentials has also declined to 43 per cent (56 per cent in June).

Four in 10 consumers (43 per cent) indicate that months of rising prices have led them to change their everyday spending habits. Of these, a majority (54 per cent) say that they are shopping at discount stores more often, and nearly three in 10 (28 per cent) are making greater use of vouchers and discount codes – in both cases striving to get the most from every pound. Another technique is to simply cut back, with four in 10 (44 per cent) buying fewer treats for themselves.

In line with June, nearly half of Brits (47 per cent) are ‘feeling the squeeze’ as inflation outstrips wage growth. While one in five (21 per cent) believe that the prices of everyday items will remain steady between now and the end of the year, a slim majority (51 per cent) disagree.

Paul Lockstone, Managing Director at Barclaycard, said:
“Although consumer spending growth rebounded from May and June’s lacklustre performance, last month’s figure should be treated with caution. While supermarkets posted a strong performance, some of that growth will be due to higher prices. As a result, consumers would have had to budget more carefully to spend on their favourite ‘nice-to-haves’, whether that was a night out at the cinema or a meal with friends and family.

“Months of ‘feeling the squeeze’ have made consumers a little more concerned about the bigger picture. Confidence on several measures, from the UK economy to household finances, are at some of the lowest levels we’ve ever seen, and shoppers are working increasingly hard to stretch their budget. As we head into the remainder of 2017, it will be interesting to see how Brits continue to react to this ‘new normal’.”

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ISN Souissi