The latest Barclay Consumer Spend report points to cautious improvement in UK consumer spending confidence, with help from the Bank of England’s base rate cut – although recovery remains fragile, shaped by optimism and ongoing financial pressures.
The Barclays Consumer Spend report found that UK consumer card spending rose by just 0.5% year-on-year in August, down from 1.4% in July and trailing the CPIH inflation rate of 4.2%. Essential spending declined; however, discretionary categories saw a modest 2.0% uplift, driven by strong performances in clothing, furniture, and health and beauty, suggesting customers are cutting back on essentials to treat themselves.
Areas of spending growth
Retail spending increased by 0.6%, with beauty leading the charge — up 15.6% and marking 53 consecutive months of growth. Often the vehicle for small discretionary purchases during straitened times – referred to as the “lipstick effect” — beauty was not, however, the sole beneficiary for this increased discretionary spending. Home stores posted their strongest growth since March 2022, up 11.6%, while clothing also rose 2.5%. The report found that 41% of consumers regularly treat themselves, with 61% having bought a ‘pay day’ pick-me-up in the past year.
Entertainment and leisure also saw gains, with digital content and subscriptions up 5.6%, buoyed by the success of Netflix’s animated hit KPop Demon Hunters. Overall entertainment spending rose 5.3% year-on-year.
Travel spending grew 3.1%, though consumers are increasingly cost-conscious. Over half (54%) plan to travel off-peak in 2025, rising to 71% among Gen Z. Among those, 38% prefer the “shoulder season,” while 32% book quieter times to save money.
The Barclays Consumer Spend report also found that AI is playing a growing role in household budgeting, with one in three UK consumers using tools like ChatGPT to plan and manage finances. Of those, 27% use AI to plan holidays, with top uses including itinerary creation (35%), destination research (32%), and price comparison (27%).
Consumers maximising their budgets
Karen Johnson, head of retail at Barclays, said: “Encouragingly, confidence in household finances remained steady in August, suggesting that while the cost of living is still front of mind, consumers are learning to navigate the challenges and make the most of their budgets.
“It’s clear that the ‘lipstick effect’ is having an impact outside of beauty, with shoppers treating themselves to feel-good purchases for themselves and their homes. Similarly entertainment and travel continue to benefit from consumers’ appetite for fun and memorable experiences, with KPop Demon Hunters emerging as a big winner this summer,” she added.
The Bank of England’s base rate cut had a key role to play in returning customer spending confidence. Barclay’s report found that confidence in the UK economy rose six points to 28%, while European and global confidence hit 10-month highs. Household financial confidence climbed to 73%, with 18% saying the rate cut eased their concerns.
While welcoming this improvement in consumer spending, Jack Meaning, chief UK economist at Barclays, struck a cautious note. “It is great to see consumer confidence improve in August, and households feel the benefit of another Bank of England rate cut,” he said. “However, the outlook for the rest of the year remains subdued, particularly as Budget speculation is likely to add to uncertainty for both households and businesses.”
Worries about the Autumn Budget
Scheduled for 26th November, the Autumn Budget is casting a shadow over consumer and retail confidence. Economists at Goldman Sachs warn that “significant tax increases” are likely, as Chancellor Rachel Reeves faces pressure to plug a widening gap in public finances.
This has already sparked concern among shoppers, with spending slowing amid fears of a tax raid. Retailers, too, are bracing for potential hikes in business rates and pension-related costs, which could push up prices and dampen discretionary spending.
With confidence faltering in anticipation of the Budget, uncertainty around fiscal policy is threatening to stall the fragile recovery, as Barclays’ Jack Meaning warns. “In our view, it will take further interest rate cuts to provide the economy with a sustained boost,” he said. The government must act decisively to implement measures that will restore confidence and ensure long-term stability.
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