2023 recap and 2024 consumer outlook

16 January, 2024

In 2023, persistent challenges with inflation prompted consumers to approach spending cautiously. This was evident in heightened promotional efforts from retailers while even those consumers who who felt financially secure scaled back on some spending.

The rise of 'shrinkflation' or 'skimpflation' within the service industry resulted in the lowest levels of consumer satisfaction across all UK sectors since 2017. Consequently, as 2024 kicks off, consumers have embraced a "value-oriented mindset," actively seeking products or services that offer savings or enhanced value.

Despite this economic prudence, the craving for unique and memorable experiences among consumers remained unwavering. Barclaycard's summary of 2023 card spending highlighted that consumers continued to prioritise shared experiences, leading to increased expenditures on travel (+15.2%), entertainment (+7.5%), and pubs and bars (+5.9%).

Concurrently, Merlin Entertainment reported a surge in demand for experiential gifts, especially in the UK, with an average spending of around £300 on such gifts and an anticipated fivefold growth by 2025. PROOF forecasts that the "Experience it All" trend will persist in shaping consumer behaviour throughout 2024 as individuals seek moments of joy and togetherness.

Barclays' monthly Consumer Spend Index, leveraging insights from hundreds of millions of customer transactions combined with consumer research, offers a comprehensive perspective on UK spending. The index identifies and elaborates on the top 10 trends that shaped consumer behaviour in the past year:

1. Smart shopping in supermarkets

   - Surge of 6.5% in supermarket spending due to rising food prices
   - Discount supermarkets peaked at 15.5%, reflecting consumers' efforts to cut costs.

2. “Skimpflation” and “shrinkflation” impact

- 76% observed shrinkflation in September, affecting products like chocolate, crisps, biscuits, and snack bars.

(Skimpflation or shrinkflation is a form of inflation, most common in food and beverage, that consists of reducing a product's size while maintaining its retail price).

3. Economic pressures dampen dining out

   - Eating-out expenses down by 6.7% as consumers cut discretionary spending to cope with escalating household bills.

4. Events drive pubs and bars growth

   - Pubs, bars, and clubs grew by 5.9% YoY, attributed to major events like the King’s Coronation and Rugby World Cup.

5. Thriving entertainment economy

   - Entertainment sector grew by 7.5% despite inflation, driven by major events and blockbuster hits.

6. “Streamflation” spurs subscriptions

   - Digital content and subscriptions rose by 7.3% as home experiences gained popularity.

(Streamflation refers to the increase in streaming popularity and the inflation of streaming subscriptions).

7. Unpredictable weather clouds high-street sales

   - Clothing stores declined by -0.5% due to rising costs and unpredictable weather.

8. Shift from home investments to experiences

   - Home improvements and DIY declined by -4.7%, furniture stores by -5.2% as spending shifted to experience-led categories.

9. Continued growth in the travel sector

   - Travel agents up by 10.4%, airlines with an impressive 30.8% growth; 'revenge spending' trend emerges.

10. “Lipstick effect” boosts health and beauty

    - Pharmacy, health and beauty retailers saw a 5.6% uplift due to the "lipstick effect," with increased demand for cosmetics and self-care products.

Esme Harwood, Director at Barclays, said: 

“Brits prioritised memorable experiences and shared moments with loved ones this year, boosting pubs, travel and entertainment.

Many were keen to make up for lost opportunities during the pandemic by booking holidays, treating themselves to concert tickets, and enjoying nights out with friends.

However, certain sectors saw noticeable cutbacks. Restaurants and clothing stores were hampered by the unpredictable weather, as well as the impact of rising household bills on consumers’ personal finances.

Nonetheless, Brits' confidence in their ability to spend within their means has remained resilient, as they become more resourceful and adept in finding ways to balance their budgets.” 

Jack Meaning, Chief UK Economist at Barclays, added: 

“Although 2024 will be a tough year for the economy as a whole, the New Year is a time to look for the positives.

We expect to see the Bank of England start easing interest rates from the middle of the year, and in fact, we’re already seeing mortgage rates come down in anticipation.

This is as the speed of price rises slows, which should continue to provide at least some boost to the spending power of people who have been squeezed through the cost-of-living crisis.

2024 will be a year of transition, from headwinds to tailwinds, but come next December we should be able to toast the New Year with more festive spirit.”

Sources: Barclays, InsightDIY

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