UK Consumers Embrace 'Sweet Treat Economy' Amid Economic Challenges

In the face of economic challenges, UK consumers are turning to small indulgences as a form of comfort, creating what Barclaycard has dubbed the "sweet treat economy." Despite high interest rates and potential tax increases, spending on affordable luxuries such as pastries and cosmetics has seen a notable uptick.

Karen Johnson, head of retail at Barclays, noted an "emerging trend of consumers indulging in retail therapy for mood-boosting pick-me-ups." This phenomenon aligns with the "lipstick effect" theory, proposed by Leonard Lauder, former chairman of Estée Lauder, following the September 11, 2001 terrorist attacks. The theory suggests that during times of economic uncertainty, people tend to spend more on affordable luxuries.

Consumer card spending rose by 1% in August 2023, reversing a two-month decline. Notably, 47% of surveyed individuals reported continuing to spend on small luxuries even while making cutbacks in other areas. Health and beauty retailers experienced a significant 7.3% increase in spending, the largest since January 2023.

Baked goods have emerged as a popular form of affordable indulgence, with social media playing a crucial role in driving trends. TikTok, launched in 2016, has become a major influencer in food trends. For instance, the "Dubai chocolate bar," a chunky chocolate bar filled with pistachios and knafeh (a traditional Middle Eastern dessert), gained popularity after a video by influencer Maria Vehera garnered millions of views. Another trending item is the "crookie," a hybrid croissant and cookie.

Despite gloomy economic forecasts from government officials, consumer confidence rose by five percentage points in August 2023. Seventy percent of those surveyed reported feeling more confident about their household finances, while 73% expressed increased confidence in their ability to live within their means.

The retail sector showed signs of recovery, with spending growing for the first time since March 2023, albeit by a modest 0.1%. Garden centres saw a particularly strong 8% increase in spending, benefiting from favorable weather conditions. Grocery spending also rose by 1.9%, its largest increase since March. However, clothing shops experienced a 1.7% decline in sales, possibly due to adverse weather events like Storm Lilian.

"Difficult decisions will be necessary to fix the economy."

Amidst these spending trends, Barclaycard reported a phenomenon called "double-dip" shrinkflation, where products have reduced in size multiple times while prices remain stable or even increase. This practice has been particularly noticeable in items such as chocolate, crisps, biscuits, snack bars, and sweets.

As the UK approaches the crucial festive period, the "sweet treat economy" serves as a reminder of consumers' resilience and adaptability in the face of economic uncertainty. While challenges persist, the trend of mood-boosting purchases suggests that small indulgences continue to play a significant role in maintaining consumer confidence and well-being.