Consumer spending remained subdued last month, but research suggests that hard-pressed consumers are still treating themselves to mood-boosting luxuries, such as pastries and cosmetics.
In a survey by Barclays, 47% of people said that they continue to spend on small, luxury purchases that bring them joy even when trying to make cutbacks. Sweet treats, such as baked goods, are the most popular type of pick-me-up (45%), with the bank noting that this could be due to the influence of viral sensations like the ‘crookie’ and the ‘Dubai chocolate bar’ on social media.
The research is part of Barclays’ monthly insight on consumer card spending in the UK. In August, it rose 1.0% year-on-year following two consecutive months of decline, although it remains below inflation.
The data shows demand for little luxuries also bolstered health & beauty retailers, with the category enjoying another month of growth (+7.3%) – the highest since January 2023 (+10.2%) – reflecting a long-running trend of shoppers prioritising cosmetics even as budgets tighten, often referred to as the ‘lipstick effect’.
Spending on groceries (+1.9%) saw its largest uplift since March this year (+2.7%). This was fuelled by robust growth at food and drink specialist stores – such as butchers and delicatessens – which saw their biggest increase (+5.1%) since January (+5.2%) as people enjoyed barbecues and picnics in the sunshine.
Supermarkets (+1.5%) also saw their highest growth since March this year (+2.8%), in part reflecting a shift towards healthier home cooking. Nearly half (45%) of people surveyed by Barclays said they are prioritising buying raw or whole-food ingredients to prepare fresh meals and snacks in order to avoid ultra-high-processed foods.
Meanwhile, concerns related to shrinkflation remained stable in August, with 80% of consumers saying the trend was having a negative impact on their household finances.
However, a quarter (26%) stated that they have also started to spot ‘double-dip shrinkflation’, where products go through two or more rounds of size reductions without a corresponding reduction in price. The top five most frequently cited products hit by ‘double-dip shrinkflation’ are chocolate (57%), crisps (44%), packs of biscuits (41%), snack bars (36%) and sweets (36%).
Looking ahead to the upcoming festive season, over a third (35%) of those surveyed anticipate that this Christmas will be more expensive than last year, and one in five (19%) is worried about how they’ll keep up with those rising costs. Meanwhile, a quarter (24%) are concerned that shrinkflation will mean they get less value for money on their festive spending.
That said, people are feeling more confident in both their household finances (70%) and their ability to live within their means (73%) compared to last month (65% and 70% respectively).
Karen Johnson, Head of Retail at Barclays, said: “The long-awaited British summer has unlocked pent-up demand across a number of retail categories, such as garden centres and butchers, as many Brits dusted off their barbecue for the first time this year.
“We’re also seeing an emerging trend of consumers indulging in retail therapy for mood-boosting pick-me-ups, often in the form of sweet treats and cosmetics. This is a much more immediate version of the long-running trend of consumers making room in their budgets for memorable experiences, like tickets for next year’s Oasis tour, which went on sale over the weekend.
“While cost-conscious shoppers continue to rein in discretionary spending to account for rising prices, especially in the run-up to Christmas, it’s encouraging to see that Brits are feeling noticeably more confident in their personal finances – a strong indicator of future spending as we approach the crucial festive period.”
Jack Meaning, Chief UK Economist at Barclays, added: “Having seen government spending drive the economy in the second quarter, and private consumption relatively muted, this data very much supports our view that the balance will shift over the second half of the year and into next. Growing real incomes and strengthening consumer confidence should combine with falling interest rates to increasingly allow consumers to put their spending power to work.”
NAM Implications:
- Despite ‘growing real incomes’, people are still hesitating…
- …and perceive themselves as having less disposable income.
- And given that lockdown trust dilution is not being helped by
- Continuing shrinkflation
- And in some categories ‘Double-Dip Shrinkflation’
- Adding to distrust…
- …pragmatists need more convincing that a return to normal is taking place.
