Consumer spending growth slows for second consecutive month in June

Consumer spending growth slows for second consecutive month in June

Cautious shoppers begin to cope with ‘new normal’ of rising prices and subdued wage growth

Consumer spending growth slowed to 2.5 per cent in June as Brits were squeezed by higher expenditure on essentials (5.9 per cent), leaving less for ‘nice-to-haves’
Fine weather ensured the ‘experience economy’ remained a bright spot, however, with restaurants and pubs up 13.6 per cent and 11.4 per cent 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 per cent 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 per cent in Q2.

The three months to June tell a story of two halves. While April recorded the joint-highest figure (5.5 per cent) since Barclaycard records began, flattered by a later Easter, May (2.8 per cent) and June (2.5 per cent) 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 per cent, down from a high of 19.2 per cent in February) as prices continued to fall on the forecourt, a 6 per cent rise in supermarkets, partially driven by higher prices, pushed up essential spending 5.9 per cent.

It marked the fifth month this year when spending on necessities grew faster than on discretionary items (1.4 per cent) – 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 per cent year-on-year. Entertainment growth, which had been in double figures since February, slowed to 6.8 per cent albeit against a strong June last year (11.7 per cent). 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 per cent and 11.4 per cent respectively. Staying indoors proved less popular, with cinema spending down 4.3 per cent year-on-year.

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

Brits ‘consciously coping’ with reduced spending power

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

Confidence in household finances is holding steady at 69 per cent, 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 per cent) planning more frequent visits to discount stores and a similar proportion looking for bargains online (33 per cent).

The money saved will enable them to prioritise experiences instead. More than four in ten Brits (46 per cent) say they will always find money to spend on areas that are important to them, even if prices rise, with 45 per cent citing holidays as a priority. Four in ten (40 per cent) 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.”