Two-thirds of the way through 2Q22, and the message from the UK money sector is still one of resilient consumer spending. But what are households (HHs) spending their money on and why does it matter?
According to the latest ONS data (9 June 2022), monthly spending on credit and debit cards was 104% of its pre-pandemic, February 2020 level. This is 18ppt higher than in January 2022 and 6ppt higher than in May 2021 (see chart above).
All spending categories rose in the week to 1 June according to the shorter-term, daily CHAPS-based indicator. While the overall message from the shorter-data remains the same, it is important to note that spending is concentrated on getting to work and on staples ie, spending more on basic items (see chart below).
In contrast, while spending on delayable goods such as clothing and furniture is recovering, it remains 8ppt below pre-pandemic levels.
This matters, because spending on delayables is a key indicator of whether the excess savings built up during the pandemic are returning to the economy in a sustained manner.
Please note that the summary comments and charts above are abstracts from more detailed analysis that is available separately.
The latest ONS “real-time” indicators (12 May 2022) confirm the resilience of the UK consumer during 2Q22.
Monthly card spending in April was 2% above pre-pandemic levels, 16ppt higher than in January 2022. Daily card spending rose to 110% pre-pandemic levels in the week to 5 May 2022, with rises across all segments. Spending on so-called “delayable” goods continues to recover but is the only segment where current spending is still below pre-pandemic levels. This matters because spending on delayable goods is the best indicator that the excess savings built up during the pandemic are returning to consumption in a sustainable fashion.
Despite the threat of rising inflation and falling real incomes, UK consumers continue to “bash the plastic”. They are spending more on getting to work and on staples, however, than on items such as clothing and furniture. So positive news, but only up to a point.
A full recovery in spending on delayable goods is required before we can have confidence that the UK consumption recovery is sustainable.
Still bashing the plastic – the charts that matter
The latest ONS “real-time indicators” (12 May 2022) confirm the resilience of the UK consumer through 2Q22, at least so far. Monthly card spending (see chart above) in April was 102% pre-pandemic levels, 16ppt higher than in January 2022 (87%) and 9ppt higher than April 2021 (93%).
Daily card spending (rolling seven-day) also increased by 8ppt in the week to 5 May 2022 to reach 110% of pre-pandemic levels (see chart above). Spending rose across all categories, with the largest growth seen in “social” spending. “Work-related”, “staple” and “social spending” are currentl 131%, 120% and 113% pre-pandemic levels (see chart below).
Spending on “delayable” goods such as clothing and furniture is recovering (see chart below), but remains 5% below pre-pandemic levels. This matters because delayable spending is our preferred indicator regarding the extent to which excess savings are returning to the economy in a sustained fashion.
Conclusion
UK consumers continue to “bash the plastic” despite the challenges of rising inflation and falling real incomes. This is positive news. Consumers are spending more on getting to work and on staples, however, than on items such as clothing and furniture. A full recovery in spending on delayable goods is required before we can have confidence that current consumption is sustainable.
Please note that the summary comments and charts above are extracts from more detailed analysis that is available separately.
Expect a steady release of the £150bn of excess savings
The key chart
The key message
UK GDP grew 4.8% YoY in 2Q21 as consumer spending rebounded following the easing of COVID-19 restrictions during the quarter. The message from the money sector, which has foreshadowed official data well, remains positive but with the risk of momentum slowing. The £150bn of “excess savings” are likely to return to consumption in a steady rather than dramatic fashion.
Spending on credit and debit cards, which has been rising since early January, accelerated further with the re-opening of non-essential retail stores on 12 April 2021. In relation to pre-COVID levels, the largest increases in spending since the latest relaxation have been on the “work-related” (31ppt) and “delayable” (30ppt) goods. In contrast, spending on “staples” has slowed (but remains above pre-COVID levels).
Spending has increased further so far in the 3Q21: social (11ppt); work-related (6ppt); delayable (2ppt) and staples (1ppt). However, it is below recent peaks in each category and below (delayable, social) or at (aggregate) pre-COVID levels.
Separately, the money sector is indicating that household uncertainty remains elevated as indicated by monthly flows of money holdings that remain 2x pre-COVID levels. On a positive note, this suggests that excess savings built up during the pandemic now exceed £150bn.
Spending on delayables is the best indicator of the extent to which excess savings are returning to the economy via sustained consumption. The evidence to date is that this is happening in a steady rather than dramatic fashion.
Where next – in charts
Please note that the summary comments and charts above are extracts from more detailed analysis that is available separately.
UK households (HHs) were already “poised to disappoint” before COVID-19 hit as post-GFC consumption drivers proved unsustainable. During the pandemic, consumption fell much faster than incomes as savings increased markedly. HHs continued to accumulate money holdings at rates well in excess of the pre-COVID period in 1Q21 while YoY declines in consumer credit hit historic levels.
Monthly money flows followed the timing of lockdown restrictions and relaxations closely. This suggests a relatively large element of “forced” savings that could be released relatively quickly to support economic activity. That said, much of these accumulated savings have accrued to HHs that already have sizable savings, have higher incomes, and are older – such HHs typically spend less from any extra savings they accumulate.
Excess money holdings reached £139bn at the end of 1Q21 (CMMP estimates) and could total £164bn by the end of 1H21 (below the OBR’s forecast of £180bn). The latest Bank of England forecast suggests that 10% of these excess money holdings will be spent over the next three years, compared with 5% previously (and current OBR forecasts). This c£16bn spending boost is likely to be front loaded into 2H21 and 1H22.
It is reasonable to assume that a large proportion of this will be directed towards durable goods whose consumption was delayed during lockdown (eg, car sales). So-called “social consumption” will naturally benefit too, but there is only so much time that can be made up – you can only eat so many meals in one day!
Please note that the summary comments above and charts below are extracts from more detailed analysis that is available separately.
The key message in six charts
Post-GFC/Pre-Covid: HH consumption funded initially by slowing rate of savings
During COVID: HH savings increased markedly
1Q21 – HHs accumulate money holdings at c.4x pre-COVID levels