Consumer spending softens in December despite Q4 growth hitting a four-year high. Sentiment weakens with ‘caution’ the watchword for 2017.
- Consumer spending grew 4.0 per cent in December, below the Q4 average of 4.8 per cent, suggesting faltering confidence in the UK economy is starting to affect consumers’ propensity to spend
- Clothing (-0.3 per cent) and in-store spending (0.3 per cent) suffered in December, while online spending (15.1 per cent) and petrol (10 per cent) saw healthy gains, the latter driven by increasing prices partly due to the weaker pound
- Q4 spend growth was boosted by upticks of 5.5 per cent in October and 5.1 in November – the two highest monthly figures since Barclaycard began publishing data in October 2011, though this was partially driven by inflation following the depreciation of the pound after the EU referendum
- Two-thirds of consumers expect prices to continue rising in 2017; just 36 per cent are now confident in the UK economy, down from 48 per cent at the end of Q3
Consumer spending rose 4.0 per cent in December, dropping below the Q4 average of 4.8 per cent, suggesting shoppers have started to rein in spending amid concerns over the wider economic picture moving into 2017.
Data from Barclaycard, which processes nearly half of the nation’s credit and debit card transactions, shows that December’s slower growth – while the same rate seen in December 2015 – was below the average of 4.8 per cent for Q4 2016, the highest growth in four years. This was boosted by record highs in October (5.5 per cent) and November (5.1 per cent). Not all growth was due to consumers splashing out, however, with rising prices responsible for some of the robust figure.
December’s softer figure coincided with a drop in the proportion of consumers expressing confidence in the UK economy, which fell 12 percentage points from a record high of 48 per cent at the end of Q3 to just 36 per cent at the end of Q4 – a return to levels seen before the EU referendum in June.
High street woes but online grows
The end of the year proved a hit for ecommerce retailers, with online spending up 15.1 per cent in December. The high street suffered, however, with in-store spend growth flatlining at 0.3 per cent, leading some retailers to issue profit warnings after the festive period.
Spend on clothing was the hardest hit, contracting 0.3 per cent year-on-year and falling into negative territory for only the sixth month since records began. Meanwhile, spending in department stores posted a fifth consecutive month of decline, down 3.5 per cent versus the same month in 2015.
A shifting of priorities
The ‘experience economy’, a driving force of spending growth throughout 2016, weakened as the gap between spend on essentials and non-essentials continued to narrow. Although entertainment spend – which includes pubs, restaurants, cinemas and concerts – rose 7.6 per cent, this was its slowest rate of growth since November 2015. Despite this, leisure time remained a key priority for consumers, with double digit growth across pubs (10.3 per cent) and restaurants (11.2 per cent).
In contrast, spending on essential items was strong at 3.4 per cent growth in December. This was partially driven by petrol rising 10 per cent year-on-year – only its second double-digit increase in 28 months and the result of pump prices reaching an 18-month high.
‘Caution’ the watchword for 2017
The shift in spend from discretionary items to essentials reflects a growing sense of caution as the arrival of 2017 brings a new wave of economic uncertainty following the Brexit vote. 39 per cent of consumers expect the UK economy to decline over the course of 2017, and 42 per cent believe their personal finances will suffer as a direct result of Article 50 being invoked.
Looking ahead, the majority of consumers expect household expenditure to rise over the next three months, particularly anticipating price increases for petrol (68 per cent) and groceries (66 per cent). Almost two in three (63 per cent) have already noticed a rise in the price of everyday goods, including food and fuel, and expect this trend to continue in 2017.
Paul Lockstone, Managing Director at Barclaycard, said:
“2016 saw consumer spending growth sign-off with a very strong quarter, but the headline number masks a story of softening spend growth as the year came to an end. While October and November were record months, spending growth slowed a little over the key festive shopping weeks in December.
“This could be an early indication of things to come as consumers seem to have entered 2017 with more caution, citing worries about inflation and the triggering of Article 50. Looking ahead, all eyes will be on whether this year will see households begin to feel squeezed by rising prices, leading to a sustained fall in consumer spending on discretionary items in favour of their day-to-day essentials.”