Holidays take a hit as UK cost of living fears and Iran war bite

UK consumers have cut back on travel spending for the first time in five years, as they worry about the rising cost of living amid the Iran war.Overall consumer card spending increased 0.9% year on year in March, down from February’s 1%, according to data from Barclays.Travel spending fell by 3.3% last month, the first decline recorded by the lender since March 2021, as people postponed trips abroad or opted to holiday domestically. In recent years, consumers have often prioritised spending on travel and “experiences” over physical products.People spent less at travel agents last month (down 4.6% annually), airlines (-4.1%) and public transport (-2.9%). Spending on hotels, resorts and other accommodation went up by 1.2% amid a preference for UK-based outings and a rise in domestic bookings during the Easter break.The ongoing Middle East conflict – which started in late February with US-Israeli attacks on Iran – has also prompted one in seven adults to delay big purchases or to build up savings to prepare for rising energy costs.The UK’s energy regulator reduced the cost of gas and electricity bills by 7% from 1 April by lowering the energy price cap, but they are forecast to jump by 18% in July, reflecting higher wholesale costs.Spending on essential items such as food and petrol rose by 0.5% last month, led by a 1.6% increase in spending on fuel, the first rise since February 2023, according to the Barclays report. Surging oil prices have pushed up prices at the pumps in recent weeks.Growth in “non-essential” discretionary spending slowed to 1.1%, with consumers still spending on clothing (up 3.6% year on year) and entertainment (+3.5%). Cinema spending rose 5.5%, boosted by the box office successes of Ryan Gosling in Project Hail Mary and the Pixar animation Hoppers.Jack Meaning, chief UK Economist at Barclays, said: “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.”Most adults remain confident in their household finances (67%) and ability to live within their means (71%), but have grown more pessimistic about the general economic outlook. Just over one in five (21%) are confident about the UK and global economies, down from 25% and 24%, respectively, in February.Karen Johnson, head of retail at Barclays, said: “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.”A separate report from the British Retail consortium showed UK retail sales increased by 3.6% year on year in March, against growth of 1.1% in March last year, and above the 12-month average of 2.6%. This was driven by a 6.8% jump in food sales.Helen Dickinson, the group’s chief executive, said: “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.”