After a washout summer, with stubbornly high interest rates taking their toll and the spectre of tax rises on the horizon, one might expect people to be tightening their belts as the gloom sets in.
Not so, according to Barclaycard. The public has in fact upped spending on small luxuries, such as pastries and cosmetics, in what the card provider has dubbed the “sweet treat economy”.
Karen Johnson, head of retail at Barclays, said there was “an emerging trend of consumers indulging in retail therapy for mood-boosting pick-me-ups, often in the form of sweet treats and cosmetics”.
Consumer card spending rose by 1pc in August after two months of decline and around half (47pc) of people surveyed by Barclays said they were continuing to spend on small luxuries, even when trying to make cutbacks.
Baked goods were the most popular form of affordable pick-me-up. Barclays said shoppers may well be influenced by viral snacks on social media, such as the “Dubai chocolate bar”, a chunky chocolate bar filled with pistachios and knafeh – a crispy shredded filo pastry. A video of TikTok influencer Maria Vehera eating one has racked up millions of views.
Another baked good that has gained popularity thanks to the internet is the “crookie”, a hybrid croissant and cookie, which Barclays highlighted as another top seller.
The bump in feel-good spending has coincided with gloomy news coming out of Downing Street. Rachel Reeves, the Chancellor, has accused the Tories of leaving a £22bn “black hole” in the nation’s finances and warned that “difficult decisions” will be necessary to fix the economy. Sir Keir Stamer has described the country as “broke and broken” and last week the Prime Minister warned the upcoming Budget would be “painful”.
Barclays said the increase in spending on treats was an example of the “lipstick effect”, whereby people spend more on affordable luxuries during times of worry. Leonard Lauder, the former chairman of beauty giant Estée Lauder, proposed the theory in the wake of the Sept 11, 2001 terrorist attacks in New York. Sales at his company fell in the wake of the shock, but lipstick was up.
Barclays’ data showed a 7.3pc jump in spending at health and beauty retailers last month, the biggest rise since January 2023.
Ms Johnson said: “This is a much more immediate version of the long-running trend of consumers making room in their budgets for memorable experiences, like tickets for next year’s Oasis tour.”
While the outlook from Whitehall may be pessimistic, consumer confidence among those surveyed by Barclays rose by five percentage points in August.
Seventy percent said they were feeling more confident in their household finances, while 73pc said they were more confident in their ability to live within their means compared with the prior month.
Optimism may have been sparked by the first cut to interest rates in four years, which happened last month. Economists reckon the Bank of England may reduce borrowing costs even further before the year is out.
Ms Johnson said: “It’s encouraging to see that Brits are feeling noticeably more confident in their personal finances – a strong indicator of future spending as we approach the crucial festive period.”
Retail spending grew for the first time since March, rising 0.1pc, with garden centres recording a particularly strong 8pc increase in spending thanks to sunny weather. Grocery spending, too, saw a promising rise, up 1.9pc – its largest uplift since March.
However, clothing shops suffered a 1.7pc decline in sales. Many likely suffered as a result of downpours such as Storm Lilian last month.
Elsewhere, Barclaycard said many shoppers were now noticing what it called “double-dip” shrinkflation, where products have shrunk in size more than once despite the price remaining the same – or in some cases rising.
Shrinkflation has been employed by food and drink companies in recent years to shore up profits in a period where the cost of manufacturing and labour has soared.
Chocolate, crisps, biscuits, snack bars and sweets were the products most commonly reported to have shrunk more than once.