Card spending grew by 0.5% cent in August

Consumer card spending grew just 0.5 per cent year-on-year in August, down from 1.4 per cent in July and lower than the latest CPIH inflation rate of 4.2 per cent, according to new data from Barclays. Essential spend declined, however, discretionary spend rose 2.0 per cent, as clothing, furniture and health & beauty stores all performed well.

Following the announcement of higher than expected inflation in July, nine in 10 (89 per cent) UK consumers expressed concerns about food price rises in August – a seven month-high – with the same proportion (91 per cent) saying they’ve noticed items becoming more expensive this year. Meat, seafood and eggs (52 per cent), fruit and vegetables (49 per cent), and dairy products (48 per cent) are the most cited examples of products that have gone up in price.

Confidence in the strength of the UK economy improved six percentage points month-on-month in August, rising to 28 per cent, while confidence in the European and global economy both hit 10-month highs, at 31 per cent and 28 per cent respectively. Confidence in household finances (73 per cent), was up both month-on-month, and year-on-year, from 72 per cent and 70 per cent respectively. One in five (18 per cent) said the base rate reduction eased their personal finance concerns, while fewer consumers said they were concerned about rising interest rates in August, down one percentage point to 62 per cent.

Retail spending increased 0.6 per cent in August, led by health and beauty’s continued strong performance, up 15.6 per cent. This marks 53 months of consecutive growth for the category, which has long benefitted from the ‘lipstick effect’, where consumers prioritise small, affordable luxuries even when making cutbacks.

Furniture stores also benefitted from this trend, up 11.6 per cent – the greatest rise since March 2022 – while the volume of transactions was also up 7.7 per cent. Meanwhile clothing stores enjoyed a 2.5 per cent boost. This comes as 41 per cent of consumers say they treat themselves regularly, but are finding ways to do so on a budget, while three in five (61 per cent) have bought themselves a ‘pay day’ treat as a pick-me-up in the last year.

Travel, which has emerged as one of the strongest performing non-essential categories post-Covid,  grew 3.1 per cent in August. However, over half (54 per cent) of consumers say they are opting for an off-peak holiday in 2025, rising to 71 per cent among Gen Z. Of those travelling off-peak, two in five (38 per cent) actually prefer the so called “shoulder season”, while one in three (32 per cent) are booking trips during quieter times to save money.

Consumers are also making use of AI tools to help cut costs. Of the one in three (34 per cent) using AI tools such as Chat GPT for planning, spending and budgeting, 27 per cent are doing so to plan holidays. Among this group, the top uses are creating itineraries (35 per cent), researching and choosing destinations (32 per cent) and translation (30 per cent), while 27 per cent are finding and comparing prices, discounts and deals with these tools.

Karen Johnson, Head of Retail at Barclays, said “Encouragingly, confidence in household finances remained steady in August, suggesting that while the cost of living is still front of mind, consumers are learning to navigate the challenges and make the most of their budgets.

“It’s clear that the ‘lipstick effect’ is having an impact outside of beauty, with shoppers treating themselves to feel-good purchases for themselves and their homes. Similarly entertainment and travel continue to benefit from consumers’ appetite for fun and memorable experiences, with KPop Demon Hunters emerging as a big winner this summer.”

Jack Meaning, Chief UK Economist at Barclays, said “It is great to see consumer confidence improve in August, and households feel the benefit of another Bank of England rate cut. However, the outlook for the rest of the year remains subdued, particularly as Budget speculation is likely to add to uncertainty for both households and businesses. In our view, it will take further interest rate cuts to provide the economy with a sustained boost.”