Households splash out on treats as falling prices and rising wages put extra cash in their pockets, finds Barclaycard

The double-whammy of increasing wages and falling prices combined to lift households' fortunes in October.


Retail spending recovered from a late-summer lull to grow 4.1 per cent year-on-year in October, according to the latest data from Barclaycard, which processes nearly half of all credit and debit card transactions in the UK.  But the headline number masked a clear distinction between spending on essential and non-essential items.


Essential spending fell by 3.1 per cent, its worst performance since March 2014, led by a fall in supermarket spending which was down 0.9 per cent compared to last year - its worst performance in 19 months.


In-store supermarket spending fell by 1.4 per cent, whereas online spend grew by 8 per cent – the lowest level this year and down a third on the 12.2 per cent average for 2015.


The number of supermarket transactions grew at its slowest pace in two years, by just 5.1 per cent. And the average transaction value in supermarkets was down 5.7 per cent as falling food inflation and a shift from the weekly shop to ‘little and often’ in smaller supermarket convenience stores continued to have an impact, with consumers switching between mainstream chains, pound stores and discounters.


September’s inflation rate was pulled down by lower food prices, which dropped 2.5 per cent in the prior 12 months as supermarket price wars affected the grocery industry, according to the Office for National Statistics. This, combined with falling petrol prices - diesel is at its lowest level since December 2009 – has acted as a ‘de facto tax cut’ for households. Kantar Worldpanel found last month that the supermarket price war was saving each household £58 on average.Meanwhile, in the three months to August, total earnings were up 3 per cent from a year earlier. 


Consumers have used this windfall on discretionary items such as furniture, travel and clothing. ‘Non-essential’ spending increased by a tenth to 6.6 per cent in the month – from 5.8 per cent in September, and is higher than at any point in 2014.


Growth in the number of ‘non-essential’ retail transactions, which act as a solid indicator of how much people are buying, hit 11.9 per cent year-on-year in October – the joint-highest level so far this year. These transactions are up 10.7 per cent so far this year, eclipsing the 8.3 per cent they grew by in 2014.


Barclaycard consumer research found that nearly a third (30 per cent) of consumers say they are better off now than they were expecting to be a year ago and that around three in five (58 per cent; up from 56 per cent in Q2) are confident in their ability to spend more on discretionary items.



It also found that, despite the improving economy, consumers have retained their value-conscious streak and are still seeking out the best prices before they commit to spending money. Almost three quarters (72 per cent) said that even if the economy recovers significantly, value for money will remain the key factor when making purchases.


Chris Wood, chief operating officer at Barclaycard said: "Retail spending performed strongly in October as further growth in employment and wages was met by falling food and petrol prices. With consumer confidence also at high levels, shoppers feel better off and more able to spend more on discretionary purchases.


"In what seems to be a legacy from the economic downturn, however, consumers are still very focused on getting value for money.  As people start to think about their Christmas shopping, this should serve as a warning to retailers. Our data tells us very clearly that the successful retailers this Christmas will be those who sell the right products at the best price."



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