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Consumer aged between 65 and 74 are spending more on holidays, the ONS reveals.
Consumer aged between 65 and 74 are spending more on holidays, the ONS reveals. Photograph: Alamy Stock Photo
Consumer aged between 65 and 74 are spending more on holidays, the ONS reveals. Photograph: Alamy Stock Photo

Pets and package holidays – how over-65s drive UK consumer spending

This article is more than 6 years old

Household expenditure on cars, holidays and pets drives recovery but signs emerge of a slowdown

Spending by British households has returned to its pre-financial crisis levels in real terms, driven by purchases of cars and spending by older consumers on package holidays and pets.

Figures from the Office for National Statistics showed average weekly spending in the UK rose to £554.20 in the financial year ending March 2017, an increase from £533 the previous year. Transport and recreation were the two categories where expenditure increased the most, rising by about £5 on average per week.

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What is inflation and why does it matter?

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Inflation is when prices rise. Deflation is the opposite – price decreases over time – but inflation is far more common.

If inflation is 10%, then a £50 pair of shoes will cost £55 in a year's time and £60.50 a year after that.

Inflation eats away at the value of wages and savings – if you earn 10% on your savings but inflation is 10%, the real rate of interest on your pot is actually 0%.

A relatively new phenomenon, inflation has become a real worry for governments since the 1960s.

As a rule of thumb, times of high inflation are good for borrowers and bad for investors.

Mortgages are a good example of how borrowing can be advantageous – annual inflation of 10% over seven years halves the real value of a mortgage.

On the other hand, pensioners, who depend on a fixed income, watch the value of their assets erode.

The government's preferred measure of inflation, and the one the Bank of England takes into account when setting interest rates, is the consumer price index (CPI).

The retail prices index (RPI) is often used in wage negotiations.

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Taking into account spending before and after the Brexit vote, the latest figures are an eye-opening reminder of the spending power of the older generation, versus the tough economic times for younger households – who are likely to be the first group in modern times to be poorer than their parents.

Spending on recreation and culture among the under 30s was almost half that of those between 65 and 74, who shelled out almost a fifth of their disposable income on this category. Statisticians said pets, pet food, and package holidays were among their most popular purchases.

The figures also illustrate buoyant economic conditions just before inflation started to outpace wage growth in the wake of the EU referendum, when a fall in the pound pushed up the cost of importing goods to Britain. Levels of consumer spending have since started to slow on average.

Last year’s rise in spending also outstripped growth in disposable income over the course of the year, with expenditure increasing by 4% as the amount of money available for people to spend rose by 2.3%. Poorer households have been harder hit by rising prices, according to the Resolution Foundation, which found spending increased by 7% for lower income families, while rose by only 1% for the richest half.

Stephen Clarke, policy analyst at the thinktank, said: “This extra spending outpaced the extra level of income available to households, who turned instead to their savings and credit cards.”

Graph

Transport expenditure was the biggest single category for average weekly spending, at £79.70 per week, with the running costs of vehicles – such as petrol, diesel and repairs – taking up the biggest proportion from this category. The ONS said it had seen a big increase in the use of car finance deals – something which has worried the Bank of England amid rapid growth of personal debt to levels unseen since the 2008 financial crisis.

Recreation and culture was the second highest category for average spending for the first time since comparable records began in 2000, at £73.50 per week. Housing and fuel ranked third, at £72.60 per week.

However, officials do not include mortgage payments, council tax and insurance in calculations, which would have made housing the top category, with average weekly spending of about £173.40, up from £164.70 a year ago.

The government has now been tracking spending habits for 60 years, helping to show how British culture has shifted from the late 1950s to the present day. Tobacco accounted for about 6% of total spending in 1957, although now only represents 1% of all purchases, mirroring the fall in the number of people who smoke.

Expenditure on food and clothes has halved since 1957 from 33% to 16% and 10% to 5% respectively, which the ONS said could be down to greater levels of consumer choice and falling average household sizes.

Robynne Davies, senior ONS statistician, said average weekly spending last year varied considerably across the country, with more than £200 difference between the highest and lowest spending areas. Average weekly spending was highest in London at £643.70 per week, set against the lowest levels in the north east of £437 per week.

“The increases [by category] are across the board, but it’s also on more discretionary items such as recreation and culture and hotels,” she added.

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