Consumer card spending in the UK grew by only 3.6 percent year-on-year in May, which is less than half the latest CPIH* inflation rate of 7.8 percent and lower than April’s growth of 4.3 percent. This slowdown reflects Brits cutting back on discretionary purchases to manage mounting inflation and rising food prices. However, the long bank holiday weekends in May provided a welcome boost to pubs, bars, clubs, and the entertainment sector. Additionally, digital content and takeaways experienced their highest growth so far this year.
Spending on groceries witnessed a significant surge of 8.9 percent year-on-year, marking the highest growth in this category in over two years. Apart from the near-record food price inflation rate of 19.1 percent, the increase in grocery spend was fueled by the Coronation bank holiday weekend and Eurovision, as Brits purchased food and drink for street parties and celebrations at home.
On the other hand, spending on fuel continued its decline for the third consecutive month in May, with a year-on-year decrease of 10.7 percent. This can be attributed to the drop in fuel prices compared to May 2022 when prices were much higher due to the Russian invasion of Ukraine.
“Shrinkflation” Concerns Squeeze Shoppers
Amid ongoing concerns about rising food prices (88 percent), two-thirds (65 percent) of shoppers have noticed that some products are now being sold in smaller packages or portion sizes, while their cost remains the same or even higher. This phenomenon, known as “shrinkflation,” has raised concerns among the majority (83 percent) of shoppers.
Chocolate (50 percent), crisps (40 percent), packs of biscuits (39 percent), and snack bars (35 percent) were the most frequently mentioned products impacted by shrinkflation. In response, one-fifth of consumers (20 percent) are opting to purchase products in bulk that offer better value for money, moving away from downsized products by manufacturers.
Meanwhile, over six in 10 shoppers (63 percent) are actively seeking ways to reduce their weekly shopping expenses. Of these budget-conscious individuals, 41 percent are using vouchers or loyalty points to save money, and 27 percent are purchasing more frozen food to minimize waste.
Discretionary Spending Dampened by May Showers
Spending on non-essential items saw a modest increase of only 3.0 percent this month, lower than the growth rate in April (4.6 percent). This decrease can be attributed to half of consumers (50 percent) cutting down on discretionary spending to cope with rising household bills.
The unseasonal and inconsistent weather in May led to a delay in purchasing new summer wardrobe items. Consequently, clothing experienced its largest decline in over two years (-5.1 percent), while department stores saw their smallest uplift since November 2022 (1.9 percent).
A quarter (26 percent) of shoppers stated that they are reducing their purchases of new summer outfits due to the rising cost of living, and over a third (35 percent) plan to reuse their old summer clothes to save money. In contrast, discount stores enjoyed a growth of 5.0 percent, indicating that consumers are actively seeking value wherever possible.
Bank Holiday Boost for Pubs and Bars
As consumers continue to cut back on dining out to manage cost-of-living pressures, spending at restaurants declined further (-5.3 percent). However, the Coronation and May bank holiday weekends encouraged people to make more social plans, resulting in increased spending at pubs, bars, and clubs (6.4 percent) as well as on entertainment (7.3 percent).
‘Succession’ Finale Drives Subscriptions
In-home experiences proved to be popular, with digital content and subscriptions, as well as takeaways, experiencing their highest growth rates so far this year (10.2 percent and 13.1 percent respectively). This can be attributed to more consumers staying in to watch the finale of ‘Succession’ and other popular new shows like ‘Love & Death’.
With the arrival of summer, spending on airlines saw a significant increase of 34.4 percent, as 13 percent of individuals have set aside money to enjoy a holiday abroad this year. However, spending on hotels, resorts, and accommodation saw a decline of -4.9 percent, indicating that demand for staycations is waning now that people have the option to travel abroad.
Consumer Confidence Persists
Despite ongoing cost-of-living pressures, Brits generally feel confident about their household finances (64 percent) and their ability to manage their monthly expenses (68 percent). Moreover, confidence in the future of the UK economy has slightly increased from 25 percent to 28 percent.
Esme Harwood, Director at Barclays, noted, “Consumers are still closely monitoring their everyday spending, and we are witnessing growing concerns about ‘shrinkflation’ in the weekly shop. Many individuals are sacrificing discretionary purchases to offset rising food prices, particularly impacting clothing and restaurants. Nevertheless, the growth observed in pubs, airlines, and entertainment venues indicates that Brits are finding ways to enjoy nights out and holidays within their budgets.”
Silvia Ardagna, Head of European Economics Research at Barclays, added, “While the latest headline figures show a decrease in inflation due to lower energy prices, the prices of core services and goods remain stubbornly high, constraining real household disposable income and spending. The UK economy has currently avoided a technical recession, but the outlook suggests a potential stagnation as the impact of monetary tightening outweighs the relief from lower energy prices.”
