Consumer spending increased 3.9% in January, partially driven by price increases that continued to drive uplifts in ‘essential’ spending.
That is according to data from Barclaycard, which processes nearly half of the nation’s credit and debit card transactions.
Spending growth on day-to-day necessities surpassed 4% for the first time in seven months as inflationary pressures fuelled a strong start to the year.
This was driven by a similar seven-month-high increase for supermarket spend, which rose 4.4% year-on-year.
In contrast, growth in discretionary categories slowed, falling to 3.8% as consumers reduced spending on ‘nice-to-have’ items. Spending on clothing (1.6%) and travel (4.5%) also saw weaker growth, especially when compared with December figures of 4.1% and 7.3% respectively.
Entertainment spend recorded growth of 9.4%, as consumers increased spending in pubs (12.8%) and restaurants (10.5%).
However compared to December, when six in 10 Brits expressed confidence in their household finances, just 54% now say the same. Confidence in the UK economy is also deteriorating; just 29% of consumers say they feel confident. Half of Brits (46%) also worry that the ongoing Brexit talks will leave them worse off.
Barclaycard also said there was evidence of a future fall in perceived spending power as a result of inflationary pressures. Some 54% of Brits would reduce spending if supermarket prices were to rise, with 29% saying the same about fuel prices.
Paul Lockstone, managing director at Barclaycard, said: “January’s uplift in spending represents a strong start to the year. But faltering confidence levels across the board suggests that consumers are feeling the effects of a post-Christmas slump, as well as the wider impact of inflation on their everyday lives.
“While spending on the ‘experience economy’ proved to be a natural and welcome antidote to the January blues, the dip in sentiment revealed by our consumer confidence data, allied to concerns over economic and political uncertainty, is quite telling.
“It suggests that caution will continue to be the watchword for many consumers as they allocate their household budgets in the months ahead.”