Consumer spending slows

While consumer spending has continued to bounce back post-pandemic, research by Nationwide shows that growth has started to slow.

Between July and September growth in consumer spending hit 3%, marking a slowdown following the 14% increase recorded in Q2.  The study, which looked at more than 620 million transactions by Nationwide consumers, also revealed that spending on paying back debts was up 10% in Q4.

Despite the continued, yet more subdued rise in spending, new consumer research² from Nationwide highlights how increases in household bills could be forcing people to review their spending at a time when the economy has not long fully reopened.

Around three quarters (74%) of people are worrying about the rising cost of living and one in four (25%) are uncomfortable about the state of their finances. The poll also shows that 18 per cent have turned to credit to get by more in the last few months compared to what they had done previously, while more than a third (36%) say they will need to dip into their savings.

More than £10 billion was spent by Nationwide members on essential items in the third quarter of 2021 – a four per cent increase on Q2. Transactions were also up by seven percent, with around 298 million purchases made.

• Transport: With more people starting to go back to the office more regularly, travel-related transactions grew 30 per cent to more than 30 million between Q2 and Q3, with the total amount spent growing 45 per cent to nearly £280 million. This is also likely attributed in part to more people enjoying staycations and using public transport to get to their locations.
• Fuel: Nationwide’s members made more than 29 million transactions on fuel and electric car charging in the third quarter – an eight per cent increase on Q2. However, total spend actually increased by 13 per cent quarter-on-quarter to around £763 million, perhaps in light of the rising fuel prices and people filling up more than they would usually do.
• Debt: The Society’s data shows that the number of transactions made to pay off debt rose by two per cent in Q3. However, the total amount spent on paying back debt actually grew by 10 per cent quarter-on-quarter, suggesting people are looking to get (back) in control of their finances wherever they can.
• Utilities: There was a four per cent hike in the amount spent on utilities as the summer drew to a close. However, it is expected this will rise significantly over the coming period, in line with recently announced energy cost increases.

Nationwide’s research shows that people expect their spending to rise over the coming months, particularly when it comes to utilities (58%), food (49%) and car (34%) costs. Nearly one in five (18%) believe their spending to pay off debt will also increase, while 15 per cent believe the amount they spend on their mortgage or rent will go up in the coming months.

With nearly three quarters (74%) concerned about the current rising cost of living, it’s perhaps unsurprising, given all the reports of late, that it’s the rising cost of energy (60%), food and drink shopping (40%) and fuel (38%) that most concerns people, according to the survey². The national insurance rise (13%) and the cut to universal credit (11%) are also a concern to some.

ESSENTIAL SPEND
Spend category	Spend (Q3)	Change in spend vs Q2	Transactions (Q3)	Transactions vs Q2
Motoring (e.g. cars, bike, road tax, maintenance)	£708,988,257	0%	4,617,162	2%
Debt	£1,542,914,742	10%	8,056,108	2%
Discount stores	£286,766,231	-5%	13,484,896	1%
Fuel/Electric car charging	£763,467,450	13%	29,207,950	8%
Insurance (e.g. home, car, life, travel)	£673,734,915	3%	13,731,154	0%
Mortgage payments	£488,116,673	3%	842,852	1%
Pets	£131,493,828	6%	2,978,589	7%
Rent payments	£25,942,560	2%	104,031	2%
Supermarkets	£2,830,696,741	-1%	152,955,658	6%
Travel (e.g. public transport, taxis)	£279,989,385	45%	30,839,300	30%
TV, phone & broadband	£749,100,228	2%	21,837,169	3%
Utilities (e.g. gas, water, electric)	£1,523,237,166	4%	19,661,016	1%
TOTAL	10,004,448,177	4%	298,315,885	7%

Nationwide members spent more than £7 billion in the third quarter on non-essential items – a 12 per cent quarter-on-increase and based on more than 230 million transactions made between July and September. However, the rise in spend was well below the 60 per cent increase in discretionary spending seen between Q1 and Q2.

• Flights/Holidays: With fewer countries on the UK’s red list and with more and more flights taking off to other countries, there was a 143 per cent rise in the number of transactions made on airline travel in the second quarter. That equated to around £79.5 million spent between July and September (89% increase on Q2) as people took advantage of the summer holidays to get away from the house and enjoy a different environment. Holiday spend also rose, with more than 5.5 million transactions between July and September (up 79% on Q2), with quarter-on-quarter spend up 48 per cent to around £636 million.
• Gyms/Sport: With gyms and sports centres open, spending on leisure and recreation grew by a third (33%) in Q3 as people continued to keep fit and lose any of those lockdown pounds.
• Food and drink: Spending on eating and drinking out, rose by more than a third (35%) between July and September, given the opportunities to socialise with family and friends. And, given the summer weather, the ability to do so outside no doubt helped ease any nervousness about gatherings during the pandemic.
• Fashion: With more Brits going out to meet friends and family, the number of transactions made on clothing and shoes in Q3 rose by 11 per cent, with spending up six per cent possibly as people look to refresh their wardrobes with new outfits or because they need something that fits following the various lockdowns.
• Gardening: The third quarter did see a decline in spend on gardening – down by 39 per cent. The number of transactions made fell by nearly a quarter (24%), potentially due to people spending less time at home as restrictions eased.

According to the separate Nationwide poll², more than two in five (45%) say they would be happy to pay more for an item if they knew it was made and delivered sustainably with people happy to pay an average of £11.34 more. It’s these non-essential items, particularly clothing (54%), shoes (35%) and beauty products (30%) where this is a primary concern and the items that people would pay more for. Food is also another area that people (53%) would pay more for if it was made and delivered sustainably.

With the pandemic encouraging more people to use contactless, the number of transactions made by mobile payments continues to rise significantly – the third quarter saw payments made by mobile up by just over a third (34%) quarter-on-quarter. Payments by contactless card also rose by 14 per cent, although this rise may increase next quarter following on from the recent increase in the contactless limit to £100.

While spending on debit cards by Nationwide members remained stable over the quarter (only a two per cent rise), spending on credit cards increased by 11 per cent to more than £2 billion. This is perhaps linked to holidays and travel spend as people look to put larger transactions on their credit cards as they offer increased protection, compared to a debit card, should anything go wrong with the purchase.

Mark Nalder, Nationwide’s Head of Payments, said “Our latest Spending Report shows a continued rise in spending over the summer months as people maintained their return to normality by travelling to work, going on holiday and socialising with family and friends. However, the rate of increase has clearly slowed somewhat as time has gone on and, as our research suggests, this could be due to the concerns and limited ability people have to weather the rising cost of living, in particular when it comes to energy, food and fuel prices.”

“With more than a third of people saying their finances have deteriorated over the last few months, there is also a sense of belt-tightening particularly when it comes to spending on those non-essential items as people possibly look to focus what money they have on the essentials.”

“The trends developed over the pandemic about how people pay for items seems to be sticking as the surge in contactless payments, particularly via mobile, continued in the third quarter. Although there was only a 14 per cent rise quarter-on-quarter in card contactless payments, we expect that to increase in the coming months as people get used to the recent increase in contactless limit to £100″

“As we move deeper into the winter months and with the rising cost of living likely to continue to bite consumers, we expect the growth of spending to slow further as people pay even closer attention to their finances and have to make those choices as to what they can and can’t spend. Financial wellbeing is incredibly important at this time, which is why we continue to work with our members and support them if they experience financial difficulty.”