UK consumer spending strengthened in February as offices reopened and social life resumed following the relaxation of Covid rules but the rising cost of living is starting to hit households’ confidence, according to data released on Tuesday.
Consumer card spending increased 13.7 per cent in February compared with the same period in 2020, picking up pace after Omicron-affected growth of 7.4 per cent in January, figures from the payments company Barclaycard showed.
The figures reflect nearly half of all UK credit and debit card transactions, but are not adjusted for inflation — meaning that some of the growth reflects rising prices, rather than higher consumption.
Barclaycard said growth of 12 per cent in spending on essential items was driven by fuel purchases — due to higher prices at the pump as well as a return to commuting.
However, spending on non-essential items was 14.5 per cent higher than in February 2020 — the fastest growth since before Omicron’s emergence — as people bought clothes and beauty products while returning to restaurants, bars and clubs as well as to the workplace.
The travel sector had its best month since the start of the pandemic, Barclaycard said, with spending now above the February 2020 level for hotels and resorts, and recovering rapidly — although still well below pre-pandemic levels — for airlines and travel agents.
Jose Carvalho, head of consumer products at Barclaycard, said the uplift in spending showed people were “keen to make the most of life” following the easing of coronavirus restrictions, but noted that there had also been a “shift in spending habits” towards more price-conscious behaviour.
A survey conducted by Barclaycard in mid-February found that almost half of consumers expected inflation to affect their household budgeting in February, with about 45 per cent buying own-brand products over branded goods in supermarkets in order to cut costs.
Figures released separately on Tuesday by the British Retail Consortium, an industry body, painted a similar picture of consumers keen to make the most of new freedoms, while worrying about rising costs.
The BRC-KPMG sales monitor showed year-on-year growth in total retail sales climbed to 6.7 per cent in February, slightly above the three-month average growth rate of 6.5 per cent but well below the 12-month average of 11.3 per cent. The figures are not adjusted for consumer price inflation, which stood at 5.5 per cent in January.
Food sales were broadly flat, with growth driven by in-store spending on products such as furniture, clothes and jewellery.
But Helen Dickinson, BRC chief executive, said the future looked “increasingly uncertain”, with the inflationary squeeze likely to hit discretionary spending.
The Resolution Foundation warned on Tuesday that families across Britain should “brace themselves for an even deeper living standards squeeze”, with the conflict in Ukraine likely to drive inflation above 8 per cent in the spring.
The think-tank forecast in its annual outlook for living standards that inflation would average 7.6 per cent, much higher than the Bank of England’s current forecasts, over the fiscal year 2022-23. After factoring in wage growth and changes to benefits, it forecast that typical household incomes would be 4 per cent, or £1,000, lower than the previous year and by 2025-26 would still be lower than they were in 2021-22 as the economy emerged from the worst of the pandemic.