Despite a blistering summer, high interest rates and looming tax rises, Britons are spending more on small luxuries such as pastries and cosmetics, a trend Barclaycard has dubbed the “confectionery economy”.
According to Barclaycard, consumer spending on cards rose 1% in August after two months of decline, with nearly half of those surveyed (47%) continuing to enjoy simple luxuries even as they tried to cut other expenses.
Karen Johnson, head of retail at Barclays, noted that consumers are turning to retail shopping for mood-boosting foods. Baked goods have become the most popular and affordable food, influenced by social media trends such as “Dubai Chocolate” and “croquis,” a croissant and biscuit hybrid, both of which have seen sales increase.
This surge in happiness spending is in line with what’s known as the “lipstick effect,” a theory that suggests people gravitate toward affordable luxuries during tough times. The theory, pioneered by Leonard Lauder, former chairman of Estée Lauder, highlights how lipstick sales surged in the wake of the 9/11 attacks despite a general decline in cosmetics sales. Barclaycard data showed a massive 7.3% increase in spending at health and beauty retailers in August, marking the biggest increase since January 2023.
The trend towards spending on small luxuries comes amid gloomy economic forecasts from Downing Street. Chancellor Rachel Reeves recently highlighted a £22bn “black hole” in the nation’s finances, and Prime Minister Sir Keir Starmer described the country as “broke and broke”. With warnings of a “painful” budget ahead, consumers are seeking comfort in indulging in small things.
But despite the gloomy outlook, consumer confidence has seen a surprise boost. A Barclaycard survey revealed a five-percentage-point increase in confidence in August, with 70% of respondents feeling more secure about their household finances and 73% more confident about their ability to live within their means than in the previous month. The surge in optimism may be linked to the Bank of England’s first interest rate cut in four years, with economists predicting further cuts.
Ms Johnson expressed optimism about future spending: “It is encouraging to see that Britons feel significantly more confident about their personal finances – a strong indicator of future spending as we head into the crucial festive period.”
Retail spending showed growth for the first time since March, rising slightly by 0.1%. Garden centres benefited from sunny weather, seeing spending rise by 8%, while grocery spending rose by 1.9%, the biggest jump since March. However, clothing stores saw a 1.7% decline, likely affected by bad weather, including Storm Lillian.
Barclaycard also highlighted the growing awareness among consumers of double-digit inflation, where products are reduced in size multiple times without a corresponding reduction in price – or even with price increases. Products such as chocolate, crisps, biscuits, snack bars and confectionery were the most commonly reported, a tactic used by companies to maintain profits amid rising manufacturing and labour costs.
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