Consumer spending jumped to 4.0 per cent year-on-year in December – outperforming the Q4 average of 3.2 per cent – to mark the first occasion in three months when spending outpaced the rate of inflation. But while shoppers loosened the purse strings to enjoy Christmas and take advantage of seasonal sales, they remain cautious about prospects for the year ahead.
Data from Barclaycard, which processes nearly half of the nation’s credit and debit card transactions, shows that December’s 4.0 per cent growth was above the average of 3.2 per cent for Q4 2017 – the result of weaker performance in October (2.4 per cent) and November (2.8 per cent), as consumers spent more cautiously following months of rising prices and stagnant wage growth.
Growth in both essential (3.7 per cent) and discretionary (4.2 per cent) spending climbed above the prevailing rate of inflation to help boost December’s figure. Supermarket spending grew 3.5 per cent, the highest of the quarter, as food prices continued to rise.
Pub and restaurant spend grew 8.3% and 9.7% year-on-year respectively, strong growth on the double-digit rises recorded in 2016 (10.3% and 11.2%).
The uplift in non-essential spend was partially driven by strong growth in airlines (6.1 per cent) and clothing (4.1 per cent), with consumers taking advantage of cut-price deals as part of month-long discounting events such as Black Friday. Electronics also saw a welcome uplift as a result, rising 1.9 per cent to record a second consecutive month of growth after having been in negative territory since October 2016.
The sales period proved a hit for ecommerce retailers, with online spending up 14.1 per cent in December. In-store spending also grew, up 0.3 per cent – the first month of growth since April 2017, with some retailers revealing a better-than-expected Christmas in recent trading statements.
Despite the majority of consumers increasing their spending across the board, the proportion of those expressing confidence in the UK economy remains relatively low at 34 per cent – particularly when compared to the 61 per cent who say they do not feel confident. This gap in sentiment has steadily widened on average from September 2016 when the proportion of those feeling confident (48 per cent) was greater than those who were not (47 per cent).
Brits remain cautious about the year to come; more than four in 10 (42 per cent) believe that the economy will deteriorate to some extent during 2018. Speculation about further interest rate rises is also weighing on shoppers’ minds, with almost half (46 per cent) worrying about the impact of a hike in rates on their perceived spending power – the joint-highest proportion since Barclaycard started asking this question in Q1 2015.
To help alleviate concerns, most consumers (65 per cent) say they are looking for more ways to make their money go further in 2018, for example visiting discount stores and shopping during sales periods. With the money they put aside, many Brits will continue to fuel the ‘experience economy’; three in 10 shoppers (31 per cent) plan to spend more on leisure time with friends and family over physical goods this year.
Paul Lockstone, Managing Director at Barclaycard, said:
“Following months of consumers ‘feeling the squeeze’ of inflation, spending in December was comparatively robust, boosting an otherwise muted quarter. It’s reassuring to see that we continue to prioritise the festive period as a time to spend on celebrations with friends and family, although many of us took advantage of the sales to do this, indicating we are now a nation of value seekers.
“Much as we saw in 2017, caution continues to be the prevailing sentiment amongst Brits, however. As we head into 2018, it will be interesting to see whether consumers rein-in after Christmas in anticipation of future financial shocks, and what methods they use to help keep their budgets on track.”