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UK Economy
Britons shift spending towards luxuries
From the Financial Times of Mon, 22 Dec 2014 12:45:04 GMT
©Bloomberg

Low inflation and the supermarket price war have allowed cash-strapped Britons to redirect more of their spending towards luxuries, according to an analysis of spending data.

Britons have become increasingly willing to splash out on entertainment and clothing but this is being funded by cutting back on other expenditure, research by credit card provider Barclaycard shows.

While wages have recently just begun to nudge above the rate of inflation after years of stagnation, the biggest boost to household incomes has come from the dramatic fall in oil prices, cutting the cost of both fuel and imports.

The data from Barclaycard, which processes more than 40 per cent of credit and debit card transactions in the UK, showed that the amount spent on entertainment this year increased 11.3 per cent over the past year. Restaurants were the main beneficiaries, enjoying a 14.6 per cent rise in spending.

But entertainment only represents around nine percent of overall spending, according to Barclaycard, with food and drink comprising the biggest category of spending at 20 per cent.

Spending on petrol fell 5.5 per cent, while spending at supermarkets rose only 1.8 per cent, despite an 8.9 per cent jump in the number of purchases made.

While consumers were become more confident in their finances, “the value-seeking behaviour that we saw take hold in the tough economic times has become entrenched and we’ve seen consumers responsibly balancing the books by cutting back in one area to spend in another”, said Val Soranno Keating, chief executive of Barclaycard.

“I suspect it’s a behaviour we’ll continue to see until meaningful wage growth,” she said.

The data show that while consumers are spending more — with overall spending up 3.3 per cent on last year — transactions are getting smaller and more frequent. The figures are weighted to ensure that a change in the pattern of payments — for example, spending less cash and using bank cards more — does not distort the results. It covers the first 11 months of the year through to the end of November.

Martin Weale, one of only two out of the seven members of the Bank of England’s Monetary Policy Committee currently voting for an interest rate rise, told the BBC that he believes that pay will begin to rise next year.

“I’m getting a more general sense now that people are talking about pay increases which are materially higher than they’d offered in the past, whereas a year ago I would come across quite a few firms saying they were going to have a pay-freeze,” he said on Monday.



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