“Steady as she goes II”

The key chart

The key message

Strip out seasonal effects and the “steady recovery” story for UK consumption remains on track.

The behaviour of UK households (HH) reached an important inflexion point in early 4Q21. The year also ended with monthly HH deposit flows, a useful proxy for uncertainty levels, falling to 0.6x pre-pandemic levels and improving monthly and quarterly consumer credit trends. Positive news.

So-called “faster indicators” for estimating credit and debit card payments indicate weakness in spending at the start of the 2022. The ONS suggests that these trends were consistent with seasonal effects, however. Spending has recovered more recently with “aggregate” and “social” payments slightly below pre-pandemic levels and “staples” and “work-related” payments both above.

Payments on durable items, such as clothing and furniture, remain below pre-pandemic levels. This matters because payments on these items represent the best proxy for a more sustained recovery in UK consumption and a return of some of the c£162bn excess savings built up during the pandemic to more productive use.

In short, the message from the money sector is one of a steady rather than a dramatic recover in UK consumption so far…

Steady as she goes II – six charts that matter

In early December 2021, I argued that the behaviour of UK HHs had reached a potentially important inflexion point at the start off the 4Q21. Monthly money flows (a proxy for HH uncertainty) had moderated sharply (see chart above) and monthly consumer credit flows had reached new YTD highs. I also warned, however, that the emergence of the omicron variant and renewed restrictions might result in “these points being missed, or worse still, reversed”.

The year actually ended on a relatively positive note. Monthly HH deposit flows dropped to £2.7bn, 0.6x their pre-pandemic levels (see first chart in this section above). Monthly consumer credit flows remained at c£1bn in the last three months of 2021 (see chart above), delivering the largest quarterly flows since the pandemic hit the UK economy (see chart below). Of course, the YoY growth rate in consumer credit of 1.4% YoY remains relatively modest in relation to past trends and negative in real terms.

So-called “faster-indicators” for estimating UK spending on credit and debit cards point to volatility/weakness in consumer spending at the start of 2022.

Aggregate card payments fell from 130% of their pre-pandemic levels on Christmas Eve 2021 to 75% on the 4^th January 2022. Since then they have recovered steadily to 96% of their pre-pandemic levels by 3^rd February 2022 (see chart above). The ONS suggests that observed trends are consistent with seasonal effects.

“Aggregate” and “social” payments have recovered, but remain slightly below pre-pandemic levels as of early February 2022. “Staples” and “work-related” payments have recovered the most and are both above their respective pre-pandemic levels (see chart above). The chart illustates the difference between current payments and average payment levels in February 2020 in percentage points.

Payments on durable items, such as clothing and furniture, remain below pre-pandemic levels (see chart above). This matters because payments on these items represent the best proxy for a more sustained recovery in UK consumption and a return of some of the c£162bn excess savings built up during the pandemic to more productive use.

Conclusion

In short, the message from the money sector is one of a steady rather than a dramatic recover in UK consumption so far…

Please note that the summary comments and charts above are extracts from more detailed analysis that is available separately.