The key chart
The key message
In my previous post, “More bullish on UK consumption”, I highlighted potentially good news for UK suppliers of consumer durables. The latest data on UK spending on credit and debit cards provides further support.
At the end of 1Q21, credit and debit card purchases of so-called “delayable” goods were still 31% below the average levels recorded in February 2020 (“pre-COVID”). These purchases recovered strongly in April, however, following the reopening of non-essential retail stores (12 April) and ended the month 6% above pre-COVID levels. Aggregate credit and debit purchases also recovered last month but remain marginally below pre-COVID levels due to the on-going weakness in “social” spending.
A recovery in consumer credit is one of three key signals to watch in the 2021 messages from the money sector. March 2021 data provided only tentative encouragement in terms of the direction of travel, but April’s trends in so-called “faster indicators” may be the start of more substantive support…
Bashing the plastic
In my previous post, “More bullish on UK consumption”, I highlighted potentially good news for UK suppliers of consumer durables. I quantified the level of excess money holdings that UK households have accumulated during the COVID-19 and the potential spending boost in 2H21 and 1H21. I argued that:
“it is reasonable to assume that a large proportion of this will be directed towards durable goods whose consumption was delayed during lockdown.”
The latest data on UK spending on credit and debit cards provides further support. The ONS provides this data based on daily Clearing House Automated Payment System (CHAPS) payments at around 100 major retail companies. Companies are allocated to one of four categories based on their primary business:
- “Staples”: companies that sell essential goods such as food and utilities
- “Work-related”: companies providing public transport or selling petrol
- “Delayable”: companies selling goods whose purchased could be delayed such as clothing or furnishings
- “Social”: spending on travel and eating out
At the end of 1Q21, credit and debit card purchases of so-called “delayable” goods were still 31% below the average levels recorded in February 2020 (“pre-COVID”). The chart above illustrates the backward looking, seven day rolling average of purchases. Lockdown restrictions had a clear, negative impact on delayable goods purchases in 2Q20 and 1Q21. Aggregate credit and debit card purchases were also 13% below pre-COVID levels at the end of 1Q21, supported only by spending on “staples”.
These purchases recovered strongly in April, however, following the reopening of non-essential retail stores (12 April) and ended the month 6% above pre-COVID levels (see chart above). Aggregate credit and debit purchases also recovered last month but remain marginally below pre-COVID levels due to the on-going weakness in “social” spending (see chart below).
Conclusion
A recovery in consumer credit is one of three key signals to watch in the 2021 messages from the money sector. March 2021 data provided only tentative encouragement in terms of the direction of travel, but April’s trends in so-called “faster indicators” may be the start of more substantive support…
Please note that the summary comments and charts above are extracts from more detailed analysis that is available separately.