Consumer trends, UK : January to March 2016

In Quarter 1 (Jan to Mar) 2016, household spending (adjusted for inflation) grew by 0.7% (£2.1 billion) compared with Quarter 4 (Oct to Dec) 2015.

The main contribution to growth can be seen in “Housing, water, electricity, gas and other fuels”; this has increased by 0.9% compared with Quarter 4 (Oct to Dec) 2015. “Alcoholic beverages, tobacco and narcotics” was the largest area showing small negative contributions to the overall growth in the current quarter, Jan to Mar 2016.

Household spending in volume terms increased to £277.1 billion in Quarter 4 (Oct to Dec) 2007 before falling to £260.1 billion in Quarter 2 (Apr to June) 2009. Following falls in 2010 and 2011, it has now increased to £288.9 billion in Quarter 1 (Jan to Mar) 2016, the highest volume spending since the start of the series. In each quarter since Quarter 3 (July to Sept) 2014, volume spending has exceeded the previous high in Quarter 4 (Oct to Dec) 2007.

Household spending when compared with the same quarter a year ago has been showing positive growth each quarter since Quarter 4 (Oct to Dec) 2011. It was 2.8% higher in Quarter 1 (Jan to Mar) 2016, when compared with Quarter 1 (Jan to Mar) 2015.

The current price value of household spending, which includes inflation, shows how much UK households spent. In Quarter 1 (Jan to Mar) 2016, current price spending increased by 0.8% compared with Quarter 4 (Oct to Dec) 2015.

The household expenditure implied deflator increased by 0.1% in Quarter 1 (Jan to Mar) 2016 compared with the previous quarter, Oct to Dec 2015.

The volume measure provides an estimate of the amount of goods and services purchased by households. In Quarter 1 (Jan to Mar) 2016, it increased by 0.7%. The current price value of household spending (inflation included) shows how much UK households spent. In Quarter 1 (Jan to Mar) 2016, it increased by 0.8% compared with Quarter 4 (Oct to Dec) 2015. Figure 1 compares the levels of current price and volume spending from 2010 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 adjusts 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.

From 1997, household final consumption expenditure:

• in current prices, increased to £244.8 billion in Quarter 2 (Apr to June) 2008, falling to £235.2 billion in Quarter 2 (Apr to June) 2009, then returning to positive growth primarily in each quarter since Quarter 3 (July to Sept) 2009 to reach £295.5 billion in the latest quarter, Jan to Mar 2016

• in volume terms, increased to £277.1 billion in Quarter 4 (Oct to Dec) 2007, falling to £260.1 billion in Quarter 2 (Apr to June) 2009; following falls in 2010 and 2011, it has now increased to £288.9 billion, the highest volume spending since the start of the series; in each quarter since Quarter 3 (July to Sept) 2014, volume spending has exceeded the previous high in Quarter 4 (Oct to Dec) 2007

The pre-2007 increases in household spending were a consequence of households predominantly 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 Quarter 1 (Jan to Mar) 2016, the value of household spending in current prices increased by 0.8% on the previous quarter, Oct to Dec 2015 and by 3.1% on the same quarter (Jan to Mar) in 2015. The volume measure of household spending increased by 0.7% on the quarter (Jan to Mar) 2016 compared with the previous quarter. When comparing the volume measure of household spending in Quarter 1 (Jan to Mar) 2016 with the same quarter (Jan to Mar) in 2015, it increased by 2.8%.

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 (Jan to Mar) 2016, increasing by 0.9% on the previous quarter. Within this area, “Electricity” showed the largest increase of 6.7% compared with Quarter 4 (Oct to Dec) 2015.

The largest negative contribution to growth over this quarter can be seen in “Alcoholic beverages, tobacco and narcotics” which has fallen by 0.6% in volume terms. This is driven by decreased spending on “Wine, cider and perry”, which has fallen by 2.4% compared with the previous quarter, Oct to Dec 2015.

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, Jan to Mar 2016, the seasonally adjusted household expenditure measure of prices, the implied deflator, increased by 0.1% compared with Quarter 4 (Oct to Dec) 2015, indicating the increase in prices that households face when purchasing goods or services.

The household expenditure deflator (seasonally adjusted) is 0.2% higher than in Quarter 1 (Jan to Mar) 2015, which is broadly in line with recent CPI data.

From the Blue Book 2011, CPI has been used to deflate estimates of household expenditure. Figure 5 compares the household expenditure implied deflator growths in percentage terms, quarter-on-quarter a year ago, with those of the CPI from 2010 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 (Jan to Mar) 2016, the revisions to total household final consumption expenditure have been made in line with the revisions policy for Blue Book 2016. Impact of Blue Book 2016 changes on current price and chained volume measure Gross Domestic Product estimates, 1997 to 2014 provides an explanation of the methods changes introduced in Blue Book 2016.

Revisions between the previous edition of Consumer Trends (Quarter 4 (Oct to Dec) 2015) and the latest HHFCE estimates are summarised in Table 1 “Revisions to Household Final Consumption Expenditure”. The revisions reflect methodological changes in the compilation of estimates, updated data from suppliers, as well as adjustments to HHFCE as a result of Supply and Use balancing and the GDP balancing process. The article Changes to National Accounts Blue Book 2016: Improvements to Household Expenditure Estimates provides more information on what Supply and Use balancing is, and how it affects HHFCE estimates in Blue Book 2016.

All growth rates in Consumer Trends are rounded to one decimal place. This may cause disparity between revisions displayed in the main Consumer Trends tables and the revisions table.

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