UK consumer spending slumps during latest lockdown

UK consumer spending and retail sales fell in January at the fastest pace since May, suggesting the economy has been hit harder by the current lockdown than November’s restrictions despite people switching to online shopping.

Consumer spending fell 16.3 per cent in January compared with the same month last year, the largest annual drop since the spring, according to Barclaycard data, tracking nearly half of all UK credit and debit card transactions.

The drop was much sharper than the 1.9 per cent fall in November and it is consistent with the economy shrinking more severely than the 2.6 per cent contraction registered during that previous lockdown period.

Raheel Ahmed, head of consumer products at Barclays, said: “As the impact of the latest lockdown start to takes its toll, we’ve seen particular sectors struggle, as physical premises across the UK were forced to close.”

UK consumer spending fell, despite many sectors benefiting from Britons buying more goods, as many services, such as restaurants and gyms, were closed under lockdown rules.

In January, spending in supermarkets, which remained open while most non-essential stores closed, rose at an annual rate of 17 per cent. Spending was up by one-third for digital TV subscriptions and takeaways and it was strong for specialist retailers such as those selling sports and outdoor goods, as demand was strong and most stores traded online.

Across all retailers, online spending rose 73 per cent compared with January last year, according to Barclaycard.

However, the slump across the rest of the consumer sector was larger, with spending in bars, pubs and restaurants dropping by about 90 per cent despite many offering deliveries and takeaways. Spending on fuels, clothing and department stores fell between 25 and 37 per cent, the largest annual contraction since the spring.

The lockdown also undermined consumer confidence, according to a separate monthly survey by Barclaycard. Only 40 per cent of Britons were confident in their job security in January, a 10 percentage point drop on the previous month, with those under 34 years old considerably less confident than older Britons. 

Analysts warn that low consumer confidence threatens economic recovery as it could prompt consumers to save rather than spend.

The fall in spending was confirmed by separate data from trade body the British Retail Consortium in association with the consultancy KPMG.

The BRC data showed UK retail sales falling at an annual rate of minus 1.3 per cent, the first contraction since May. Yet, the fall in January was much milder than the 19 per cent contraction in April.

Helen Dickinson, BRC chief executive, said: “The current lockdown has hit non-essential retailers harder than in November, with the new variant of the virus hampering consumer confidence and leading customers to hold back on spending — especially on clothing and footwear.”

The BRC recorded a similar annual growth in internet sales to Barclaycard, resulting in the proportion of online retail spend rising to 64 per cent, close to the all-time high of last spring’s lockdown.

It also warned that many more retailers could be forced to close, adding to the number that went bust in 2020.

“If [the] government wants to avoid further administrations of otherwise viable businesses and thousands of jobs losses, it must provide those firms which have been hardest hit with the necessary financial support, including targeted business rates relief beyond March,” Dickinson said.