UK economy ‘likely to contract in Q1’, says Barclays

New research from Barclays shows a spike in utility spending and portends a contraction to the UK economy.

Overall consumer card spending was found to have grown 9.7 per cent year-on-year in January 2023, beating spending at 2.2 per cent in December 2022.

Barclays research attributed new year sales to blockbuster film releases and a surge in holiday bookings which it said resulted in strong performances across retail, entertainment, and travel.

Spending in supermarkets increased by 7.5 per cent, primarily due to inflation and partly because consumers are committing to New Year’s resolutions by cooking more instead of ordering fast food, it said.

Other spending areas which saw significant growth included energy bills, attributed to the recent cold snap, with spending on utilities up 44.7 per cent – the highest rate of growth since September 2022.

Spend in the travel sector rose over 66 per cent, while the hospitality sectors rose by around 18 per cent – both segments which Omicron restrictions impacted at the same time last year.

Barclays also noted that hospitality growth may have been due to December 2022’s rail strikes, as many Christmas parties were rescheduled to January as a result.

“The recent rise in UK card spending is due in large part to inflation, base effects from last year’s Plan B restrictions, and probably some statistical effects resulting from the strikes,” said Silvia Ardagna, head of European economics research at Barclays.

Ardagna continued: “Looking ahead, we think that the UK economy is likely to contract in Q1, as demand drops in real terms due to the loss in household purchasing power, as well as rising energy and mortgage bills.”

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