UK Travel Spending Declines for First Time in Five Years
Consumer spending on travel in the United Kingdom has fallen for the first time in five years, as households grapple with rising cost of living pressures and the economic impact of the Iran war. According to new data from Barclays, overall consumer card spending increased by 0.9% year on year in March, a slight decrease from February's 1% growth.
Travel Sector Takes a Significant Hit
Travel spending specifically dropped by 3.3% last month, marking the first decline recorded by the lender since March 2021. This downturn reflects a broader trend of consumers postponing international trips or opting for domestic holidays instead. In recent years, British consumers have often prioritised spending on travel and "experiences" over physical goods, but this pattern appears to be shifting.
Detailed breakdowns show that spending at travel agents fell by 4.6% annually, while airlines saw a 4.1% decrease and public transport spending declined by 2.9%. In contrast, spending on hotels, resorts, and other accommodation rose by 1.2%, driven by a preference for UK-based outings and an increase in domestic bookings during the Easter break.
Middle East Conflict and Economic Uncertainty
The ongoing Middle East conflict, which began in late February with US-Israeli attacks on Iran, has significantly influenced consumer behaviour. One in seven adults has delayed major purchases or built up savings to prepare for anticipated rises in energy costs. Although the UK's energy regulator reduced gas and electricity bills by 7% from 1 April by lowering the energy price cap, forecasts predict an 18% jump in July due to higher wholesale costs.
Spending on essential items such as food and petrol increased by 0.5% last month, with fuel spending rising by 1.6%—the first increase since February 2023. Surging oil prices have pushed up pump prices in recent weeks, adding to household financial strains.
Discretionary Spending Shows Resilience
Growth in "non-essential" discretionary spending slowed to 1.1%, yet consumers continued to spend on clothing, which saw a 3.6% year-on-year increase, and entertainment, which rose by 3.5%. Cinema spending notably increased by 5.5%, boosted by box office successes like Ryan Gosling in Project Hail Mary and the Pixar animation Hoppers.
Jack Meaning, chief UK Economist at Barclays, commented: "Shoppers delaying major purchases and building up a savings buffer in response to the shock from the Middle East reinforces our view that activity will be muted in the coming months. With an interest rate decision due in less than three weeks' time, the Bank of England will need to consider how to balance this softening economy with the inflation already taking effect."
Consumer Confidence and Retail Performance
Most adults remain confident in their household finances, with 67% expressing assurance and 71% confident in their ability to live within their means. However, optimism about the general economic outlook has waned. Just over one in five (21%) are confident about the UK and global economies, down from 25% and 24%, respectively, in February.
Karen Johnson, head of retail at Barclays, noted: "March's figures may highlight some differences between how consumers feel and how they actually spend. Cost of living concerns and economic uncertainty continue to weigh on confidence, prompting caution and a desire to cut back, but spending remains resilient across several categories, namely clothing, entertainment and digital content and subscriptions."
A separate report from the British Retail Consortium revealed that UK retail sales increased by 3.6% year on year in March, compared to growth of 1.1% in March last year, and above the 12-month average of 2.6%. This surge was primarily driven by a 6.8% jump in food sales.
Helen Dickinson, the group's chief executive, stated: "An early Easter provided a much-needed boost to food sales as families came together over the long weekend. Non-food performance was more uneven: demand was robust for computers, toys, and homeware, but clothing and footwear continued to struggle. The disruption to international travel caused by the Middle East conflict also hit sales of travel-related goods."
