Consumer spending stalemate: rising costs undermine efforts to cutback household finances

Consumer spending stalled in April in the first sign that the cost of living is starting to hit the pockets of the average household, according to Nationwide Building Society’s latest Spending Report.

As households appear to be starting to reduce spend, the rising costs of goods and services threatens to undermine their efforts, the data suggests. This follows increases in essential and discretionary spending in recent months.

During April, the Society’s members made around five million fewer transactions than they did the previous month – with 212 million transactions made compared to just over 217 million in March. Despite the drop, the total amount spent did not fall as well because just over £8.1 million was spent during April – broadly similar to the total amount spent by members in March. This suggests that while people may be trying to reduce the purchases they make, the cost of the transactions being made has gone up.

Although there was neither a growth nor decline in non-essential spending in April compared to March, it does still remain significantly up on last year, by 27 per cent. The major areas seeing year-on-year growth continue to be holidays, cruises and airline travel as well as eating and drinking out and leisure, as people across the country continue to enjoy socialising and enjoying their free time without any Covid restrictions.

Essential spending is also up (+11%) compared to April last year reflecting the increased costs facing households this year, particularly around fuel, food and utilities. Nearly £3.5 billion was spent on essentials in April, which is broadly similar to the amount spent by members in March. While a number of areas saw a month-on-month decline in spending (for example, childcare, motoring, and TV, phone and broadband), spending on utilities and other household bills rose 40 per cent between March and April, reflective of the increased utility costs and also that April marks the first month of the new Council Tax year with Direct Debit payments resuming.

Non-essential spend

Non-essential spending by Nationwide members reached nearly £2.8 billion in April – broadly in line with March and based on nearly 95 million transactions. This is indicative of people looking at ways to cut back where they can.  This is most evident in areas such as charity donations (down 16% month-on-month), dating (-10%) and subscriptions (-10%).

Despite spend plateauing, there were some areas that saw month-on-month growth in April. These include gardening (+10%), clothing (+14%), cruises as well as eating and drinking out (+6%).

When compared to last April, spending was still up 27 per cent, likely as a result of people enjoying a life beyond lockdowns, although facing higher prices for goods and services.

Overview of non-essential spend:

• Spending on clothing and shoes reached more than £222 million - an increase of 14 per cent on March and a 22 per cent increase on last year. With summer fast approaching and people preparing for their holidays and socialising, many will want to make sure they look good.
• Despite squeezed finances, socialising continues to be on the cards. Nationwide’s data highlights that spending on eating and drinking out rose six per cent in April (vs March) and is 93 per cent higher than last year.
• With spring in full blossom, gardening is the order of the day, with spending in April shooting up by 10 per cent compared to March as people look to get their gardens ready for the summer months.
• There was a 10 per cent month-on-month fall in spending on subscriptions, such as Netflix, food, drink, newspapers and magazines in April. Spending also fell two per cent versus April 2021.
• Although charity spend is down 16 per cent in April after the boost in March, it is still up 17 per cent compared the same period last year as people look to continue supporting others in less fortunate situations.

Essential spend

Nearly £3.5 billion was spent by Nationwide members on essential items in April – on a par with March. However, transaction numbers were down by around 3.5 million in April (-3%) as people look to lower bills where possible. Yet, with spending not decreasing, the costs of items that people are paying for have potentially increased during the month.

While the only area to see significant growth was utilities, which was up by a staggering 40 per cent, costs that reduced by the most include motoring (-14%), debt (-10%) insurance (down by 9%), TV, phone and broadband (-8%)

Overview of essential spend:  

• Spending on utilities and bills in April rose by 40 per cent month-on-month as increases in energy, water and Council Tax took effect. In addition, many households will have seen their Council Tax bills resume following a break at the end of the previous tax year. The data shows that spend on bills was up 16 per cent on April 2021.
• Childcare expenditure fell by nearly a quarter in April (-23% vs March) as parents potentially look for other, cheaper options to look after their children. In addition, many parents would have taken time off for Easter break, thereby reducing reliance on childcare.
• With high fuel costs showing no sign of abating, there is a 37 per cent increase in the amount spent on fuel and electric car charging compared to last year. However, month-on-month, there was a small drop (-1%) as people look to potentially ration their car usage.
• In another sign of people looking for ways to reduce spending, there was an eight per cent drop in spending on TV, phone and broadband in April compared to the previous month.
• There was a four per cent drop in the volume of supermarket transactions in April, compared to March, as people reduce how often they go to the supermarket and how much they spend, which was down by one per cent versus March.
• Motoring: People spent 14 per cent less on their vehicles in April compared to the previous month, with the costs down 6 per cent compared to April 2021.

Ways to pay:

Continuing the pandemic theme, the use of mobile phones to pay for items in store continues to grow – up four per cent on March and 120 per cent compared to last year. Even using a card to tap-and-go for purchases continues to grow in April, although both at a slower pace of growth than seen so far this year. This is in keeping with overall spending being broadly flat in April. There was also a small drop in spending on credit cards in April (-1% vs March) as people consider the merits of spending more and increasing their debt level.

Mark Nalder, Head of Payments at Nationwide Building Society, said: “We’ve seen a drop in the number of transactions made by members during the month. However, with spend remaining at the same level, it is a clear sign of rising costs for good and services – both those that we need and those that we want. This is more than offsetting the reduced number of transactions people are making and something we continue to watch.

“But with inflation rising to nine per cent in April, household finances are really feeling the pinch. It’s therefore perhaps no surprise that people are trying to make cutbacks where and when they can, in order to save money and divert it towards paying the big bills.

“As we head into the summer months, it will be interesting to see how people balance the need to save money with the want to enjoy their life with family and friends, especially with the upcoming Queen’s Platinum Jubilee Bank Holiday weekend. However, we do expect overall spending to shrink slightly in the months ahead as the rising cost of living continues to mount pressure on household finances.”

-ends-