Cautiously optimistic consumers increase spending but concerns around cost of living remain, reports Barclaycard

A more positive feeling amongst cautiously optimistic consumers about their financial situation is driving a moderate recovery in spending, according to the first Barclaycard ‘Where’s Britain Spending?’ quarterly report.

Growth in spending of 4.2% in the third quarter of the year is matched by a new confidence barometer which finds that almost two-thirds (64%) of consumers say they are confident in their ability to live within their means each month, and over half (57%) say they feel confident about their financial situation.

Following its sharp fall on the back of the economic downturn, consumer spending has shown tentative signs of a recovery over the past eighteen months, but this picked up significantly in the third quarter of the year, when spending growth reached a four-year high.

Uncertainty around the economy, however, and fears over the cost of living are holding back a full-blown spending recovery.

Six out of ten consumers feel that, compared with three months ago, they get less for the money they spend because of the effect of rising prices, while almost two-thirds say that since the economic downturn they have become more careful to seek out value for money from their spending.

These concerns have created a ‘new normal’ amongst shoppers who now habitually search for value-for-money in everything they buy, and in doing so have swapped the traditional weekly shop with more frequent visits to the shops where they only buy what they immediately need. As a result, the amount they’re spending per visit is actually falling.

According to the Barclaycard report, the average amount spent per transaction on food and drink fell 6.2% in Q3. Worryingly for retailers, this mentality looks set to continue, with over two thirds (69%) admitting that value for money will remain a key factor, even if the economy recovers.

Two thirds (65%) of consumers expect to see the cost of public transport rise and one in six (61%) expect similar increases for groceries and petrol. Yet, the headline rate of inflation has seen costs drop in all these categories.

However, this perception doesn’t always match reality. The headline rate of inflation has fallen in recent months, and the cost of many items, including petrol (which has reached a three-year low) and some groceries is down as supermarkets engage in a sustained price war.

Those on higher incomes are driving spend on more costly items, with over half (54%) of those earning over £45,000 regularly spending on treats and indulgent purchases.

In comparison, consumers earning less than £15,000 are the least likely to say that they will increase their level of spending over the next three months, at just 37 per cent.

Barclaycard has identified four main types of UK spenders as part of its ‘Where’s Britain Spending?’ report, with the ‘cautiously optimistic’ leading the way, representing almost half of the British population.  The full list of grouping is:

  • The confident and affluent (13% of the total) who are couples, often with young children, in their early thirties, whose incomes are rising sufficiently in-line with their living costs and the majority of whom (80%) are confident about their overall financial situation
  • The cautiously optimistic (44%) who are older – 44 on average, middle-income and whose wages are growing just enough to keep up with their increasing living costs; 41% expect to increase their spending in the next three months
  • The financially fragile (30%) are on lower incomes, feel quite a bit less confident about their current financial situation, and have cut back their spending in the face of on-going concerns about the economy and job security
  • The stressed and cash strapped (13%) are slightly older – 48 on average – and have a lower income still. Just 21 per cent are confident in their overall situation, and a quarter will significantly cut back on their spending in the next three months, as they expect living costs to continue to rise.

When it comes to who’s spending where, Northern Ireland saw the biggest increase in total spend, with a 5.9% rise for the quarter – ahead of London (5 per cent), the North West (4.6%) and the South East (4.5%). This can possibly be attributed to unemployment decreasing by 6.1% in September alone, as well as economic growth, with some analysts predicting a 2.6% increase in Northern Ireland’s economic growth by the end of the year.

Chris Wood, managing director, Barclaycard, said: “Consumers are spending more now than they have in four years, suggesting that whilst concerns remain about the cost of living, we’re seeing growing confidence among households.

“Our research suggests that much of the recovery in spending is being driven by higher income earners. Consumers on lower incomes are the least likely to say that they will increase their level of spending over the next three months, while the more affluent expect to increase spending the most.

“There is a new era of financial awareness among consumers, and the search for value appears to be entrenched. The full benefits of the economic recovery are still to be felt by many, and this ‘new normal’ looks set to continue. Most consumers are still feeling the pinch, so they’re holding back spending and, while they do, we’re yet to see a full-blown recovery.”

Barclaycard processes nearly half of all the UK’s debit and credit card transactions.