Warmer weather and ‘little luxuries’ boosts UK consumer spending

Consumer card spending rebounded in August, after falling for two months in a row, as the late summer heatwave helped lift spirits.

Barclays said consumer spending on its debit and credit cards rose 1% year-on-year in August, having dipped 0.3% in July and 0.6% in June.

Spending on groceries was up 1.9%, representing its biggest increase since March. The bank said that this was fuelled by a surge in shopping at specialist food and drink stores, such as butchers and delicatessens, which saw spending up 5.1% with the arrival of picnic and barbecue weather.

Garden centres also benefitted from the late summer sunshine, with spending up 8% in August, as warmer weather encouraged Brits to invest more money in their outdoor spaces.

Read more: Moneybox, NatWest Cushon, and Smart Pension join pensions dashboard scheme

Even as shoppers continued to try to make cutbacks, nearly half of consumers surveyed said that they continued to spend money on small luxuries with sweet treats found to be the most popular type of pick-me-up.

Cosmetics were another little luxury that was in demand, as spending at pharmacies, health and beauty retailers enjoyed another month of spending growth, up 7.3%. Barclays said this reflected the long-running trend of shoppers spending on cosmetics as treats even as their budget tighten, in what has become known as the “lipstick effect”.

Karen Johnson, head of retail at Barclays, highlighted this “emerging trend of consumers indulging in retail therapy for mood-boosting pick-me-ups”.

“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,” she said.

Oasis fans flocked to buy tickets for the band’s reunion tour on Saturday, which saw prices surge due to the use of “dynamic pricing”. This refers to a system where prices rise as demand for tickets increases. Outcry over the jump in prices for Oasis tickets has prompted government ministers to say that they will probe the “dynamic pricing” model.

Read more: Sterling outperforms as traders bet on September interest rate hold

Clothing was one area where consumers continued to rein in. Spending in clothing retailers was down 1.7% in August, only a mild improvement on the 2.9% decline recorded in July.

Spending on travel in August saw particularly strong growth of 6.8%, which followed news of low-cost airlines offering last minute deals.

Despite the rebound in spending, Barclays said it still remained below the latest inflation rate recorded by the consumer prices index including owner occupiers’ housing costs, which came in at 3.1% in July.

Looking ahead to the festive season, Barclays found that more than a third of Britons expect Christmas to be more expensive than last year. Meanwhile, a quarter are concerned that “shrinkflation” — where the size of products gets smaller but the cost remains the same — would also mean they get less value for money on festive shopping.

In fact, 26% said they had started to notice “double-dip shrinkflation,” where products see two or more size reductions.

Despite these concerns, Barclays said that 70% of consumers were feeling more confident about their household finances, compared to 65% in July.

Jack Meaning, chief UK economist at Barclays, said: “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,” he added.

Download the Yahoo Finance app, available for Apple and Android.