UK Travel Spending Declines Amid Cost of Living and Iran War Concerns
Consumer spending on travel in the United Kingdom has experienced a notable decline for the first time in five years, as households grapple with rising cost of living pressures and growing anxieties over the ongoing conflict involving Iran. According to the latest data from Barclays, overall consumer card spending increased by a modest 0.9% year on year in March, a slight decrease from the 1% growth recorded in February.
Travel Sector Takes a Hit
Travel spending fell by 3.3% in March, marking the first decline observed by Barclays since March 2021. This downturn reflects a significant shift in consumer behavior, with many individuals postponing international trips or opting for domestic holidays instead. In recent years, consumers have consistently prioritized spending on travel and experiential activities over physical goods, making this reversal particularly noteworthy.
Spending at travel agencies dropped by 4.6% annually, while expenditures on airlines decreased by 4.1%. Public transport spending also declined by 2.9%. However, there was a slight increase of 1.2% in spending on hotels, resorts, and other accommodation, driven by a preference for UK-based outings and a rise in domestic bookings during the Easter holiday period.
Impact of Middle East Conflict
The ongoing Middle East conflict, which escalated in late February with US-Israeli attacks on Iran, has had a profound impact on consumer confidence. Approximately one in seven adults have chosen to delay major purchases or build up their savings in anticipation of rising energy costs. Although the UK's energy regulator reduced gas and electricity bills by 7% starting 1 April by lowering the energy price cap, forecasts indicate an 18% increase in July due to higher wholesale costs.
Essential and Non-Essential Spending Trends
Spending on essential items such as food and petrol rose by 0.5% in March, primarily driven by a 1.6% increase in fuel expenditures—the first rise since February 2023. Surging oil prices have contributed to higher costs at petrol pumps in recent weeks.
Growth in non-essential discretionary spending slowed to 1.1%, though consumers continued to allocate funds to clothing (up 3.6% year on year) and entertainment (up 3.5%). Cinema spending saw a notable boost of 5.5%, fueled by the box office successes of films like Ryan Gosling's Project Hail Mary and the Pixar animation Hoppers.
Expert Analysis and Consumer Sentiment
Jack Meaning, chief UK Economist at Barclays, commented on the situation, stating, "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. Our modelling suggests this balance is best struck by holding rates, containing the worst of inflation without unduly squeezing consumers."
Despite the challenges, most adults remain confident in their household finances (67%) and their ability to live within their means (71%). However, optimism about the general economic outlook has waned. Only 21% of consumers express confidence in 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. Many are once again carefully managing their money while finding ways to prioritise the things that matter the most to them – an ongoing balancing act."
Retail Sales Performance
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 of the previous year. This performance exceeded the 12-month average of 2.6%, largely driven by a 6.8% surge in food sales.
Helen Dickinson, the group's chief executive, explained, "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."
