Card spending grows by just 0.5 percent in August, but base rate cut helps ease pressure on personal finances

• Consumer confidence in the UK, European and global economy all rebounded in August, following the base rate reduction
• Beauty posted 53 months of consecutive growth, rising 15.6 percent
• Furniture store spending increased 11.6 percent, the greatest uplift since March 2022
• Digital content & subscriptions were boosted by 5.6 percent, amid the success of Netflix’s smash hit KPop Demon Hunters
• One in three UK consumers are using AI to help with household budgeting and planning
• The Barclays Consumer Spend report combines hundreds of millions of customer transactions with consumer research to provide an in-depth view of UK spending

Consumer card spending grew just 0.5 percent year-on-year in August, down from 1.4 percent in July and lower than the latest CPIH inflation rate of 4.2 percent. Essential spend declined, however discretionary spend rose 2.0 percent, as clothing, furniture and health & beauty stores all performed well. Insperiences and leisure both saw an uplift, led by entertainment and digital content & subscriptions, with the latter helped by the success of KPop Demon Hunters.

Following the announcement of higher than expected inflation in July, nine in 10 (89 percent) UK consumers expressed concerns about food price rises in August – a seven month-high – with the same proportion (91 percent) saying they’ve noticed items becoming more expensive this year. Meat, seafood and eggs (52 percent), fruit and vegetables (49 percent), and dairy products (48 percent) are the most cited examples of products that have gone up in price.

Consumer confidence rises post-base rate cut 

Confidence in the strength of the UK economy improved six percentage points month-on-month in August, rising to 28 percent, while confidence in the European and global economy both hit 10-month highs, at 31 percent and 28 percent respectively. Confidence in household finances (73 percent), was up both month-on-month, and year-on-year, from 72 percent and 70 percent respectively. One in five (18 percent) said the base rate reduction eased their personal finance concerns, while fewer consumers said they were concerned about rising interest rates in August, down one percentage point to 62 percent.

From self-care to homeware – ‘pick me up’ purchases prop up retail

Retail spending increased 0.6 percent in August, led by health and beauty’s continued strong performance, up 15.6 percent. This marks 53 months of consecutive growth for the category, which has long benefitted from the ‘lipstick effect’, where consumers prioritise small, affordable luxuries even when making cutbacks.

Furniture stores also benefitted from this trend, up 11.6 percent – the greatest rise since March 2022 – while the volume of transactions was also up 7.7 percent. Meanwhile clothing stores enjoyed a 2.5 percent boost. This comes as 41 percent of consumers say they treat themselves regularly, but are finding ways to do so on a budget, while three in five (61 percent) have bought themselves a ‘pay day’ treat as a pick-me-up in the last year.

Small screen success for KPop Demon Hunters

The overall hospitality and leisure category grew 2.5 percent in August. The strongest performing subcategory was digital content & subscriptions, which climbed by 5.6 percent, amid the success of animated film KPop Demon Hunters. Other streaming hits in the month included The Summer I Turned Pretty and Wednesday. Entertainment spending also rose, up 5.3 percent year-on-year.

Cutting holiday costs through off-peak travel and AI itineraries

Travel, which has emerged as one of the strongest performing non-essential categories post-COVID,  grew 3.1 percent in August. However, over half (54 percent) of consumers say they are opting for an off-peak holiday in 2025, rising to 71 percent among Gen Z. Of those travelling off-peak, two in five (38 percent) actually prefer the so called “shoulder season”, while one in three (32 percent) are booking trips during quieter times to save money.

Consumers are also making use of AI tools to help cut costs. Of the one in three (34 percent) using AI tools such as Chat GPT for planning, spending and budgeting, 27 percent are doing so to plan holidays. Among this group, the top uses are creating itineraries (35 percent), researching and choosing destinations (32 percent) and translation (30 percent), while 27 percent are finding and comparing prices, discounts and deals with these tools.

Karen Johnson, Head of Retail at Barclays, said: “Encouragingly, confidence in household finances remained steady in August, suggesting that while the cost of living is still front of mind, consumers are learning to navigate the challenges and make the most of their budgets.

“It’s clear that the ‘lipstick effect’ is having an impact outside of beauty, with shoppers treating themselves to feel-good purchases for themselves and their homes. Similarly entertainment and travel continue to benefit from consumers’ appetite for fun and memorable experiences, with KPop Demon Hunters emerging as a big winner this summer.”

Jack Meaning, Chief UK Economist at Barclays, said: “It is great to see consumer confidence improve in August, and households feel the benefit of another Bank of England rate cut. However, the outlook for the rest of the year remains subdued, particularly as Budget speculation is likely to add to uncertainty for both households and businesses. In our view, it will take further interest rate cuts to provide the economy with a sustained boost.”

Image courtesy of Unsplash. Photo credit: Tara Clark.