Essential spending peaks as gap widens between what people need and want

Essential spending peaked in March as rising bills forced households to cut back on the things they want, Nationwide’s monthly Spending Report¹ reveals.

The monthly report analysed around 234 million debit card, credit card and Direct Debit transactions. It shows c£8.84 billion was spent in March, with overall consumer spending - including essential and non-essential categories - growing nine per cent year on year, with transactions up by eight per cent.

However, as a result of inflation combining with a range of external factors, which have fuelled price rises across the board, households are under continued pressure to reduce spending where they can.

As a result, essential spend in March rose by 11 per cent year on year, close to double the growth of non-essential spending (6%). The spending gap between the two areas has widened to the second largest in the last 12 months, after January, with essential spending 43 per cent higher (£1.33 billion) than non-essential spending.

All essential categories saw annual growth in spending, except for car finance, pensions and investments and fuel/electric car charging. Despite a widening gap between essential and non-essential, the latter reached its fifth highest since January 2020. Holidays, airline travel and digital goods saw the biggest annual growth in March, with charities, dating and gardening seeing the biggest decline compared to 12 months’ previous. (see breakdown below and tables in Notes to Editor).

Separate research² conducted by Nationwide in April shows more than two thirds (67%) are worried³ about the state of their personal finances and ability to cover essential costs. This is up on last month (63%) but still down on February (70%).

Essential spending overview (full data by category in table below): The amount spent during March reached over £4.44 billion – an 11 per cent increase on March 2022 as rising costs and bills continue to divert household incomes towards essential expenditure. The volume of essential transactions also rose, with c120m essential transactions in March – up eight per cent on 12 months’ previous.

• Utility bills: Spending on utility bills, such as energy and water, continues to be much higher than last year, with members spending 28 per cent more in March this year, reflecting both the increased costs and people staying in as a result of the dull, wet weather during March.
• Supermarkets: Overall spending was up 16 per cent on March 2022, which can partly be put down to food and drink inflation but also because of increased transactions (+11% vs March 2022) being made by members.
• Credit card repayments: There was a 16 per cent growth in spending on making repayments to credit cards as people continue to pay off debts accrued covering both essential and non-essential items.
• Pets: There was an 11 per cent annual growth in spending on pets in March with an average transaction value of £48.46 (+6% vs March 2022).

Non-essential spending overview (full data by category in table below): At £3.11 billion, overall non-essential spending was only up six per cent on last March (the year-on-year growth in February was 9%), while transactions (c103.9m) were up by seven per cent (vs March 2022).

• Holidays: Spending on holidays and travel continues to see year-on-year growth, with 37 per cent annual growth in the amount spent on airline travel, while spending on holidays was 16 per cent higher than in March 2022 as people look to give themselves something to look forward to.

Nationwide’s poll² shows more than a quarter (26%) prioritise spending on holidays despite challenges.

• Eating and drinking out: Eating and drinking out continues to see annual growth as people socialise with family and friends. March recorded an eight per cent annual increase in total spending, with the average transaction value standing at £13.47 (+2% vs March 2022).

Nationwide’s poll² highlights one in four (25%) prioritise spending on eating and drinking out.

• Dating: There was an 11 per cent fall in the amount spent on dating apps and sites compared to March last year as cost-of-living pressures are perhaps forcing people to prioritise their finances over finding a soulmate.
• Other shops and catalogues: There was 12 per cent annual growth in spending as people turn to specialist shops for flowers and cards to celebrate Mother’s Day, with the average transaction value standing at £57.58 – 17 per cent higher than it was in March 2022.
• Clothing and shoes: There was an eight per cent year-on-year rise on clothing and shoes as people prepare for the spring and summer seasons.

Nationwide’s poll² highlights 21 per cent prioritise spending on clothing and shoes.

Rise of contactless:

Contactless is a popular way for people to pay for their goods and services in store, especially now the limit has reached £100. According to the Nationwide poll², more than a third (34%) of people say their preferred method to pay is via contactless using their debit card, while 14 per cent prefer to use contactless on their credit card.

Mobile payments are the preferred choice of nearly one in ten (9%), while 14 per cent would choose cash to make their payment. Reasons given for the use of contactless include being able to pay for things quicker (58%), save having to look for cash (39%) and avoiding the need to remember their PIN number (32%).

Of the total number of transactions made up to £100 using a Nationwide debit card⁴ in March, 91 per cent of them were done by contactless using a card or phone.

Mark Nalder, Payments Strategy & Performance Director at Nationwide Building Society, said: “With inflation remaining high and the rising cost of living, it’s perhaps unsurprising to see an increase in the number of people concerned about their finances and ability to cover the essential costs. As our data shows, high essential costs are impacting how the nation spends its spare money.

“Despite pressures, discretionary spend remains fairly buoyant as households continue to balance what they need versus what they want. We should expect to see this continue as we approach summer and the weather gets warmer.

“The way we pay is also evolving, as shown by our data and research. A boom in contactless up to the new £100 limit means that more than nine in ten transactions made in store up to that limit were done via the technology, as consumers benefit from the convenience it brings.”

Nationwide’s freephone cost-of-living hotline for members can be reached at 0800 030 40 66. The service is supported by trained experts based across the Society’s main branches. It is available from 9am-4.30pm weekdays and 9am-12pm Saturdays and offers a range of services – from help with products and financial health checks to support from charities and organisations who can help with money worries.

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