Consumer spending grew by 3.3% in February, the second consecutive monthly slowdown since year-on-year growth reached a peak of 4.0% in December 2015, as shoppers started to show signs of more cautious behaviour in response to an uncertain economic outlook.
The latest data from Barclaycard, which processes nearly half of all credit and debit card transactions in the UK, found that overall growth in February was predominantly driven by spending on experiences. Restaurants (up 13.8%), pubs (12.8%) and hotels (7.5%) all saw an increase in spending as couples took advantage of Valentine’s Day falling on a Sunday to celebrate with meals out and weekend breaks.
The half-term holiday coinciding with the release of a slew of new films including Deadpool and Zoolander 2, along with the continued success of The Revenant, helped to boost spending at the cinema (13.6%). Travel spending also performed well, with airlines seeing a year-on-year uplift of 7.0% – the highest in fourteen months – as consumers took advantage of low fares to plan ahead for Easter and summer breaks.
However, uncertainty around the economic environment hit consumers’ confidence and led them to rein back their spending overall. Barclaycard research shows that consumer confidence has fallen to its lowest level since Q3 2014, with confidence dropping sharply over the last three months. Recent stock market turmoil, uncertainty around Britain’s EU membership and lower domestic growth forecasts are all affecting the consumer outlook.
Just over half of consumers (54%) now say they feel confident in their household finances, a significant drop from the seven-in-ten (71%) who said the same in December 2015. Across the same time period there has also been a sharp decline in confidence in job security (from 52% to 39%) and in the UK economy, which has fallen from 45% to 36%.
As a result, consumers are spending carefully on the experiences they won’t do without and holding back in other areas. This may be responsible for a drop in retail spending in February – clothing sales recorded a disappointing year-on-year rise of just 2.0% significantly down from January (6.7%) when consumers took advantage of the sales period to stock up on fashion items. Spending in both electronic stores and garden centres fell -0.7 % and -1.3 % respectively. Only department stores and discount stores, which saw rises of 9.0% and 10.1% respectively, bucked the trend.
Overall spending on the high-street fell by -0.2% whilst online spending rose 15.5%.
The spending patterns that emerged last month look set to continue as Barclaycard research suggests that shoppers plan to spend on experiences in the month ahead. Travel will continue to be a bright spot, as one in five (21%) say they’ll spend more on holidays, and one in 10 (13%) will spend more on entertainment and days out.
Paul Lockstone, managing firector at Barclaycard, said: “February spend growth, while still robust at 3.3%, continued the downward trajectory we’ve seen over the past few months as consumers reacted to uncertainty in the economy. The February half-term and the Valentine’s weekend provided bright spots, with spending on days out and trips away holding up well. This suggests shoppers are budgeting carefully so they can spend on their ‘must-have’ experiences.
“After a strong run in the second half of 2015 it seems that consumer confidence has finally caught up with the wider economic news. On-going worries over the economy and uncertainty around the UK’s EU membership may cause shoppers to continue to take a more cautious approach to spending over the coming months.”