UK consumer spending growth slows as rising living costs bite

UK consumer spending growth slowed at the start of the year as rising living costs and restrictions imposed to contain the high number of coronavirus infections limited social activity, according to bank transaction data.

Consumer card spending rose 7.4 per cent in January compared with the same period in 2020, before the first coronavirus restrictions, the smallest uplift since April 2021, figures from payments company Barclaycard showed on Tuesday.

The figure, which tracks nearly half of all UK credit and debit card transactions, was down from a 12 per cent increase in December and 16 per cent in November.

Jose Carvalho, head of consumer products at Barclaycard, said: “January’s Covid restrictions, combined with the rise in the cost of living, clearly impacted consumer spending levels.”

Spending on hospitality and leisure slipped into a 6 per cent contraction after five consecutive months of growth. The fall was partially driven by a 17 per cent contraction in restaurant spending, down from 14 per cent in December. All figures refer to a comparison with the same period two years earlier, before the pandemic.

The travel sector was also affected by the government’s “Plan B” restrictions, with public transport seeing a steeper decline than last month as working from home guidance resulted in people delaying their return to the office.

Overall, spending growth on non-essentials was halved compared with December. Spending on essential items, such as groceries and fuel, grew 10 per cent, the smallest increase since April 2021.

Barclaycard also revealed in its monthly consumer survey published alongside the spending data that nearly nine in 10 Britons said they were concerned about the impact of rising inflation on their household finances. About three in 10 said they expected increasing household bills to affect the amount they spend on discretionary purchases.

This anxiety threatens the recovery of UK consumer spending, which has helped drive the economic rebound from the pandemic. The headline decline could hide an even bigger slowdown as the figures are not adjusted for inflation, which rose to the highest level in 30 years in December.

The same is true for UK retail sales figures for January, published on Tuesday by the British Retail Consortium, an industry group. It reported that sales were up 7.5 per cent compared with the same month in 2020, but warned that a “portion of the sales growth will be a reflection of rising prices rather than increased volumes”.

Helen Dickinson, BRC chief executive, said that in the coming months retailers would face competition from other spending opportunities as the public floods back to restaurants, cafés and live events. Moreover, she noted that “rising inflation, driven by higher costs of production, higher energy and transport prices, as well as other looming price hikes this spring will mean consumers will have to tighten their purse strings”.