UK Household Consumer Spending Records First Annual Decline Since Pandemic

Household consumer spending in the United Kingdom contracted by 0.2 per cent during 2025, representing the first annual decline since the pandemic lockdowns of 2020. The reduction marks a significant reversal from the 1.6 per cent growth recorded in 2024 and the 4.1 per cent expansion observed in 2023, according to data compiled by Barclays.

The banking group’s analysis, which tracked nearly 40 per cent of credit and debit card transactions across the country, reveals that families have curtailed expenditure on essential items, including weekly grocery shopping. This retrenchment occurred against a backdrop of sustained tax increases implemented by the Labour government, which have demonstrably weakened consumer confidence and purchasing power.

Chancellor Rachel Reeves introduced substantial fiscal measures in her Budget statements, culminating in £26.6 billion of tax rises in the most recent announcement, supplementing the £41.2 billion unveiled in her initial Budget of 2024. The £25 billion increase in employer National Insurance contributions, combined with significant minimum wage adjustments and the plastic packaging tax, has compelled businesses to pass elevated costs through to consumers.

The data indicates that 2025 represents the third consecutive year in which card spending growth has failed to match the consumer price inflation rate, which currently stands at 3.2 per cent. Households have consistently tightened expenditure since the cost of living crisis reached its zenith in 2022, prioritising financial resilience over discretionary consumption.

Category-specific analysis demonstrates that grocery spending declined by 1.2 per cent, whilst home improvements and DIY expenditure fell by 2.3 per cent. Electronics purchases recorded a 1.8 per cent reduction, reflecting broader caution amongst consumers regarding non-essential outlays.

Consumer sentiment surveys conducted by KPMG corroborate this deteriorating outlook. The professional services firm found that 58 per cent of respondents believe the economy is heading in the wrong direction, a substantial increase from 43 per cent at the beginning of 2025. Two thirds of Britons now perceive the UK economy to be regressing, with half of those expressing pessimism actively reducing discretionary spending.

Looking ahead to 2026, only 13 per cent of consumers anticipate increasing expenditure on discretionary items compared with 2025 levels. Conversely, more than one quarter of respondents intend to spend less, suggesting continued pressure on economic growth. The extended delay before November’s Budget announcement, coupled with shifting briefings regarding potential tax increases, has been identified as a contributing factor to diminished business and consumer confidence.

KPMG projects economic growth of merely 1 per cent for the coming year, with the prolonged freeze on income tax thresholds expected to exert particular pressure on household spending capacity. Linda Ellett, a partner at KPMG, stated that annual consumer spending growth appears set to remain sluggish, with available discretionary budgets being directed primarily towards holidays and home improvements. She noted that competition amongst consumer-facing businesses for remaining market share will intensify, requiring sharpened focus on operational efficiencies and profit margins.

The Treasury responded by asserting that real wages have increased more substantially during the first year of the current government than throughout the entire first decade under the previous administration. A spokesman claimed that living standards have improved compared with the previous parliamentary term, suggesting households possess greater purchasing power. This position, however, appears inconsistent with the empirical spending data and consumer confidence metrics recorded by independent financial institutions.