Consumer trends, UK: October to December 2016

• In Quarter 4 (Oct to Dec) 2016, household spending (adjusted for inflation) grew by 0.7% (£2.0 billion) compared with Quarter 3 (July to Sept) 2016.
• The main contribution to growth can be seen in “Housing”, this has increased by 1.3% compared with Quarter 3 2016.
• Household spending in volume terms increased to £277.1 billion in Quarter 4 2007 before falling to £260.1 billion in Quarter 2 2009; following falls in 2010 and 2011, it increased to £294.8 billion in Quarter 4 2016, the highest volume spending since the start of the series, in each quarter since Quarter 3 2014, volume spending has exceeded the previous high in Quarter 4 2007.
• Household spending when compared with the same quarter a year ago has been showing positive growth each quarter since Quarter 4 2011; it was 2.9% higher in Quarter 4 2016, when compared with Quarter 4 2015.
• The current price value of household spending, which includes inflation, shows how much UK households spent; in Quarter 4 2016, current price spending increased by 1.4% compared with Quarter 3 2016.
• The household expenditure implied deflator increased by 0.7% in Quarter 4 2016 compared with the previous quarter.

The volume measure provides an estimate of the amount of goods and services purchased by households. In Quarter 4 (Oct to Dec) 2016, it increased by 0.7%. The current price value of household spending (inflation included) shows how much UK households spent. In Quarter 4 2016, it increased by 1.4% compared with Quarter 3 (July to Sept) 2016. Figure 1 compares the levels of current price and volume spending from Quarter 4 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 and so on) 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 gross domestic product (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 2009, then returning to positive growth primarily in each quarter since Quarter 3 (July to Sept) 2009 to reach £306.3 billion in the latest quarter, Quarter 4 2016
• in volume terms, increased to £277.1 billion in Quarter 4 2007, falling to £260.1 billion in Quarter 2 2009; following falls in 2010 and 2011, it has now increased to £294.8 billion, the highest volume spending since the start of the series; in each quarter since Quarter 3 2014, volume spending has exceeded the previous high in Quarter 4 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 less growth.

In Quarter 4 2016, the value of household spending in current prices increased by 1.4% on the previous quarter and by 4.6% on the same quarter in 2015. The volume measure of household spending increased by 0.7% in Quarter 4 2016 compared with the previous quarter. When comparing the volume measure of household spending in Quarter 4 2016 with the same quarter in 2015 it increased by 2.9%.

Analysis on spending by product relates to the domestic measure. In Quarter 4 (Oct to Dec) 2016, domestic spending in volume terms grew by 0.8% when compared with Quarter 3 (July to Sept) 2016. Figure 3 shows spending in volume terms (adjusted for inflation). Spending on “Housing” has made the largest contribution to the positive growth in Quarter 4 2016, increasing by 1.3% on the previous quarter, (0.3% of overall growth). Within this area, “Mains gas and LPG” showed the largest increase of 22.7% compared with Quarter 3 2016.

Figure 4 shows spending in volume terms (domestic measure, adjusted for inflation) between 2015 and 2016. During 2016, expenditure grew by 2.6 % when compared with 2015. This is the strongest annual growth since 2007 when expenditure grew by 2.8%. The main contributions to positive growth can be seen in “Recreation and culture”, “Miscellaneous” and “Transport”, contributing 0.6%, 0.4% and 0.3% respectively. With the exception of “Alcohol, tobacco and narcotics” all other areas have shown positive growth when compared with 2015.

The household expenditure measure of prices is an important component of the gross domestic product (GDP) deflator which is used to determine price pressures in the economy. Figure 5 shows the household expenditure implied deflator both year on year and quarter on quarter percentage change.

This quarter the seasonally adjusted household expenditure measure of prices, the implied deflator, increased by 0.7% compared with Quarter 3 (July to Sept) 2016, indicating the increase in prices that households face when purchasing goods or services.

The household expenditure deflator (seasonally adjusted) is 1.6% higher than in Quarter 4 (Oct to Dec) 2015.

From the Blue Book 2011, the consumer price index (CPI) has been used to deflate estimates of household expenditure. Figure 6 compares the household expenditure implied deflator growths in percentage terms, quarter-on-quarter a year ago, with those of the CPI from Quarter 4 2010 onwards.

In current price terms, seasonally adjusted, consumer spending in Quarter 4 (Oct to Dec) 2016 has now reached £4,655 per head. This is an increase of £54 (positive 1.2%) per head when compared with Quarter 3 (July to Sept) 2016. In volume terms, there has been an increase of 0.5% per head, indicating that consumers spent more because they bought more in addition to the effect of increasing prices.

In 2016, current price spending per head grew by £578 when compared with 2015, an increase of 3.3%. Total per head spending has now reached £18,326 in 2016, with “Housing” and “Transport” making the largest contributions of £4,604 and £2,490 respectively. The third-largest contribution to overall per head spending can be seen in “Miscellaneous”, where spending in 2016 reached £2,343.

Comparing spending by types of goods and services (in current price terms), households have continued to spend most on “Services”. In 2016, spending on “Services” grew to its highest level since the start of the series, and is now at £10,416, contributing 57.6% of total household spending. “Services” include spending on essential items such as “Housing” and “Transport services”.

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 4 (Oct to Dec) 2016, the revisions to total household final consumption expenditure have been made from Quarter 1 (Jan to Mar) 2016.

Revisions between the previous edition of Consumer trends (Quarter 3 (July to Sept) 2016) and the latest HHFCE estimates are summarised in Table 1: Household final consumption expenditure: revisions. The revisions reflect updated data from suppliers, as well as adjustments to HHFCE as a result of the GDP balancing process.

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.

We would like to invite users of the Household Income, Expenditure and NPISH estimates to a user engagement seminar.

Date – Wednesday the 26th April 2017
Time – 1pm – 5pm
Venue – 110 Rochester Row - HFMA, London, SW1P 1JP

This seminar will provide an opportunity to engage directly with key stakeholders, users and expert individuals to raise their awareness of the new data sources and methods used to produce the Household Income, Expenditure and NPISH estimates.

The Consumer trends Quality and methodology information document contains important information on:

• the strengths and limitations of the data and how it compares with related data
• uses and users of the data
• how the output was created
• the quality of the output including the accuracy of the data

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

Main quality issues

Household expenditure volume series are chainlinked annually. Estimates in this Consumer trends are now based on 2013 price structures; that is, the chained volume measure estimate in 2013 equals the current price value of expenditure in 2013.

Growth in each year up to and including 2013 is calculated at average prices of the previous year. Growth from 2013 onwards is calculated at average prices of 2013. Volume series are only additive for the most recent periods; that is, annual data for 2013 onwards and quarterly data for Quarter 1 (Jan to Mar) 2014 onwards.

Very few statistical revisions arise as a result of “errors” in the popular sense of the word. All estimates, by definition, are subject to statistical “error” but in this context the word refers to the uncertainty inherent in any process or calculation that uses sampling, estimation or modelling. Most revisions reflect either the adoption of new statistical techniques or the incorporation of new information which allows the statistical error of previous estimates to be reduced. Only rarely are there avoidable “errors” such as human or system failures and such mistakes are made clear when they do occur.

Coherence

Household final consumption expenditure estimates published in Consumer trends are a component of the gross domestic product (GDP) expenditure approach. However, the preliminary estimate for GDP is produced based on the GDP output approach. Historic experience shows that the output approach provides the best timely approach to measuring GDP growth. GDP growth according to the expenditure and income approaches is therefore brought into line with that recorded by output.

Further information

Further quarterly national accounts, quarterly sector accounts and financial accounts tables are available in the UK Economic Accounts.

Details of the policy governing the release of new data are available by visiting the UK Statistics Authority website.