UK Consumer Spending Increases Ahead of Annual Budget, Surveys Indicate

By Suban Abdulla

LONDON (Reuters) – British consumers modestly increased their spending in annual terms last month, despite concerns regarding potential tax increases in the upcoming budget presented by finance minister Rachel Reeves and a rise in household energy bills, according to a survey released on Tuesday.

The British Retail Consortium reported a 2.0% increase in spending at shops in September, marking the strongest growth since March, which saw a 3.5% increase, although this was lower than the 2.7% rise recorded in September 2022.

Reeves assumed office in July following a significant election victory by the Labour government and is expected to present her first annual budget on October 30. She has indicated that some taxes may rise but has ruled out increases to income tax and National Insurance social security contributions.

"With energy prices climbing again, all eyes are now on the budget and its potential impact on household discretionary spending as we approach the final quarter of the year," said Linda Ellett, the UK head of consumer, retail, and leisure at accountants KPMG, who sponsored the survey.

Regulated energy tariffs rose by 10% on October 1, bringing the typical annual bill to £1,717 (about $2,244).

A separate survey from Barclays, also published on Tuesday, revealed a 1.2% year-on-year increase in spending on credit and debit cards in September, the most significant rise since April, following a 1.0% increase in August.

However, in real terms, this still indicated a decline as British consumer price inflation remained at 2.2% in September, slightly above the Bank of England’s target of 2%.

Official retail sales data for August indicated a 2.2% increase in retail sales in cash terms, along with a larger-than-expected 1.0% volume increase.

Barclays noted that spending on discretionary items last month rose at the highest rate since June, with a notable 14.4% jump in entertainment spending — the largest increase since July 2023, coinciding with the start of ticket sales for a concert tour by U.S. singer-songwriter Taylor Swift.

Barclays attributed last month’s surge in entertainment spending in part to the reopening of ticket sales for concerts by British rock band Oasis, who are reuniting after 15 years.

In contrast, spending on essential items saw its largest decline since April 2020, during the COVID-19 pandemic, with grocery spending falling for the first time since June.