According to the latest report from Barclays, consumer card spending growth in the UK has slowed to a three-year low, reflecting a complex interplay of economic factors that continue to strain household budgets. In May, the growth in consumer card spending was a mere 1.0% year-on-year—the smallest increase since February 2021 and significantly lagging behind the latest Consumer Price Index including Housing (CPIH) inflation rate of 3.0%.
Economic Pressures Weigh on Consumer Spending
The slowdown in card spending growth comes at a time when consumers are grappling with rising costs across several essential services. Despite a general decline in inflation rates, individuals are facing increased financial burdens due to higher council tax and the rising costs of broadband and mobile services. These elevated expenses are having a notable impact on household budgets, dampening discretionary spending across the board.
Sector-Specific Spending Trends
The Barclays report highlights that resilient spending categories such as airlines and takeaways have not been immune to the economic pressures. Unfavorable weather has further dampened the usual consumer activity on high streets, complicating the recovery landscape for many retailers. Despite this, there is a silver lining as some consumers remain optimistic about their spending power improving with better weather conditions.
In terms of specific spending categories:
- Utilities: Spending on utilities saw a notable decline of 12.5%, influenced by the Ofgem price cap decrease in April.
- Takeaways and Fast Food: For the first time since May 2020, this category experienced a decline, with spending down 0.2% as nearly half of the consumers reported cutting back on such discretionary expenses.
- Travel and Entertainment: Both sectors faced challenges, with airlines recording minimal growth and entertainment spending only seeing a modest increase despite the onset of the summer blockbuster season.
Consumer Sentiment and Future Spending
Despite current challenges, there is an optimistic outlook among some segments of the population. Nearly three in ten consumers indicated a willingness to increase spending during the warmer months, especially among younger demographics (18 to 34-year-olds). This group is particularly keen on enjoying outdoor dining and hosting barbeque gatherings, suggesting potential seasonal boosts in related sectors.
However, overall retail spending dipped by 0.4% in May, marking the most significant drop since September 2022. In-store spending excluding groceries and clothing sales saw declines of 2.6% and 1.0%, respectively. Supermarket spending growth also slowed to just 0.3%, the lowest since June 2022, highlighting the continued cautious approach of consumers towards grocery expenditure despite lower food price inflation.
Economic Analysis and Projections
Karen Johnson, Head of Retail at Barclays, acknowledges the challenges faced in May but remains hopeful about the future. “The few sunnier days in the month did bring a welcome uptick in footfall,” she notes, suggesting that upcoming events like the Euros, Wimbledon, and major music tours could further bolster consumer spending.
Jack Meaning, Chief UK Economist at Barclays, also offers a broader economic perspective. “The economic strength we saw in the first three months of the year was always expected to ease as we moved into the second quarter,” he explains. However, with falling inflation, real income growth, and low unemployment, there is optimism that consumer spending will gradually accelerate, particularly as anticipated interest rate reductions by the Bank of England come into effect later in the year.
Conclusion
As the UK navigates a complex economic environment, consumer spending patterns reflect a cautious but cautiously optimistic outlook. While immediate challenges persist, the potential for a rebound in consumer activity remains, driven by improving weather, major cultural events, and an overall stabilizing economic climate.
