Consumer trends, UK: January to March 2015

• In quarter 1 2015 (Jan to Mar 2015), household spending (adjusted for inflation) grew by 0.9% (£2.3 billion)

• The main contribution to growth can be seen in ‘Housing’, which includes ‘Electricity, gas and other fuels’ and ‘Imputed rentals’. This has increased by 1.1% compared with Q4 2014 (Oct to Dec 2014). The largest negative contribution to growth can be seen in ‘Miscellaneous goods and services’ which has fallen by 1.4% compared with Q4 2014 (Oct to Dec 2014)

• Household spending in volume terms increased to £259.0 billion in Q4 2007 (Oct to Dec 2007) before falling to £244.1 billion in Q2 2009 (Apr to Jun 2009). It has now increased to £266.6 billion, the highest volume spending since the start of the series. In each quarter since Q2 2014 (Apr to Jun 2014) volume spending has exceeded the previous high in Q4 2007 (Oct to Dec 2007)

• Household spending when compared with the same quarter a year ago has been showing positive growth each quarter since Q4 2011 (Oct to Dec 2011). It was 3.4% higher in Q1 2015 (Jan to Mar 2015), when compared with Q1 2014 (Jan to Mar 2014)

• The current price value of household spending, which includes inflation, shows how much UK households spent. In Q1 2015 (Jan to Mar 2015), current price spending increased by 0.2% compared with Q4 2014 (Oct to Dec 2014)

• The household expenditure implied deflator fell by 0.7% in Q1 2015 (Jan to Mar 2015) compared with the previous quarter (Oct to Dec 2014)

The volume measure provides an estimate of the amount of goods and services purchased by households. In quarter 1 2015 (Jan to Mar 2015), it increased by 0.9%. The current price value of household spending (inflation included) shows how much UK households spent. In quarter 1 2015 (Jan to Mar 2015), it increased by 0.2% compared with Q4 2014 (Oct to Dec 2014). Figure 1 compares the levels of current price and volume spending from 2008 onwards.

Household Final Consumption Expenditure (HHFCE) includes spending on goods and services except for: buying or extending a house, investment in valuables (paintings, antiques etc) or purchasing second-hand goods. Explanations for these exceptions and the related concepts are available in Consumer Trends guidance and methodology.

Household expenditure is used in the National Accounts to measure the contribution of households to economic growth and accounts for about 60% of the expenditure measure of GDP. There are 2 measures:

• current prices - which is the value of spending in a particular quarter measured in the prices at that time

• volume terms - which adjust for price inflation and gives a better picture of whether households are purchasing more goods and services

The estimate of HHFCE where net tourism expenditure is included is called the UK national estimate. When net tourism is excluded, this produces the aggregate total UK domestic expenditure. Lower level analyses in this bulletin are based on the domestic concept. This is discussed in greater detail in Definitions and Conventions for UK HHFCE.

Figure 2 shows annual household final consumption expenditure from 1997 onwards, the period from which a full HHFCE dataset is available.

From 1997, household final consumption expenditure:

• in current prices, increased to £232.7 billion in Q3 2008 (Jul to Sep 2008), falling to £224.4 billion in Q2 2009 (Apr to Jun 2009), then returning to positive growth in each quarter from Q3 2009 (Jul to Sep 2009) to reach £281.8 billion in the latest quarter

• in volume terms, increased to £259.0 billion in Q4 2007 (Oct to Dec 2007), falling to £244.1 billion in Q2 2009 (Apr to Jun 2009). It has now increased to £266.6 billion, the highest volume spending since the start of the series. In each quarter since Q2 2014 (Apr to Jun 2014) volume spending has exceeded the previous high in Q4 2007 (Oct to Dec 2007)

The pre-2007 increases in household spending were a consequence of households facing higher prices and buying more goods and services. In 2008 and 2009 households spent less because they predominantly bought less, in volume terms. Since 2009, household spending has increased, but the volume of goods and services purchased has experienced far lower growth.

In Q1 2015 (Jan to Mar 2015), the value of household spending in current prices increased by 0.2% on the previous quarter (Oct to Dec 2014), and by 4.2% on the same quarter in 2014 (Jan to Mar 2014). The volume measure of household spending increased by 0.9% on the quarter (Jan to Mar 2015), signifying that in the latest quarter households are spending less for a relatively higher volume of goods and services. When comparing the volume measure of household spending in Q1 2015 (Jan to Mar 2015) with the same quarter in 2014 (Jan to Mar 2014) it increased by 3.4%, reflecting the pattern since 2009 of households spending more for a relatively lower volume of goods and services.

Figure 3 shows spending in volume terms (adjusted for inflation). Spending on ‘Housing’ has made the largest contribution to the positive growth in quarter 1 2015 (Jan to Mar 2015), increasing by 1.1% on the quarter. Within ‘Housing’,‘Electricity’ showed the largest increase of 11.1% compared with Q4 2014 (Oct to Dec 2014).

The largest negative contribution to growth over this quarter can be seen in ‘Miscellaneous goods and services’ which has fallen by 1.4% in volume terms. This is driven by decreased spending on ‘Life insurance’, which has fallen by 13.9%, reversing the increase in the previous quarter (Oct to Dec 2014). ‘Dwelling insurance’ has also fallen compared with Q4 2014 (Oct to Dec 2014) decreasing by 7.2%.

The household expenditure measure of prices is an important component of the GDP deflator which is used to determine price pressures in the economy. Figure 4 shows the household expenditure implied deflator both year on year and quarter on quarter percentage change.

This quarter, quarter 1 (Jan to Mar 2015) the seasonally adjusted household expenditure measure of prices, the implied deflator, fell by 0.7%. In addition to the effect of falling prices in some areas of expenditure in the latest quarter, particularly ‘Food and drink’ and ‘Transport’, the impact of the alignment of the household expenditure rental series with the CPIH deflator has subdued the level of current price data since 2012.

The household expenditure deflator (seasonally adjusted) is 0.8% higher than in Q1 2014 (Jan to Mar 2014).

From Blue Book 2011, the Consumer Price Index (CPI) has been used to deflate estimates of household expenditure. Figure 5 compares the household expenditure implied deflator growths in percentage terms, quarter on the same quarter a year ago, with those of the CPI from 2008 onwards.

In common with all components of UK gross domestic product (GDP), household final consumption expenditure (HHFCE) estimates are subject to the revisions policy of the UK National Accounts. This allows revisions to estimates to be made at particular times of the year.

In quarter 1 2015 (Jan to Mar 2015), the revisions to total household final consumption expenditure have been made from Q1 2014 (Jan to Mar 2014).

Revisions between the previous edition of Consumer Trends, Q4 2014, (Oct to Dec 2014) and the latest HHFCE estimates are summarised in Table 1 ‘Revisions to Household Final Consumption Expenditure’. They reflect updated data from suppliers, as well as adjustments to HHFCE as a result of the GDP balancing process.

HHFCE terms and definitions are outlined in Table 2. Consumer Trends guidance offers fuller details regarding this publication.