UK Consumers Trade Caution for Small Indulgences Amid Economic Uncertainty

Consumer card spending in the UK is projected to have experienced a slight year-on-year decline of 0.2% in 2025, a trend characterized by “careful and considered budgeting” amongst households. Despite broader economic anxieties, consumer confidence in personal finances remained notably higher than confidence in the overall economy, and a desire for small indulgences fueled growth in sectors like beauty.

The Barclays Consumer Spend performance report highlights a 2.3% decrease in essential spending in 2025, contrasting with 0.9% growth in 2024. While non-essential spending saw a marginal increase of 0.8%, it still fell short of keeping pace with the 3.8% rise indicated by the Consumer Prices Index.

A key trend shaping consumer behaviour throughout the year was persistently low confidence in the UK economy, averaging just 24% of adults expressing optimism about the nation’s economic strength. A particularly sharp dip in confidence occurred in October, coinciding with the Bank of England’s largest base rate increase in 27 years, impacting all seven consumer and economic confidence measures tracked by Barclays.

However, prudent budgeting practices helped to sustain confidence in household finances, with 64% of consumers feeling secure in their ability to manage their money and 52% confident in their capacity for non-essential spending at year-end. Although these figures represent a decrease from January’s levels (70% and 56% respectively), they demonstrate a degree of financial resilience.

This confidence in discretionary spending translated into a willingness to prioritize experiences and “feelgood” purchases. Nearly half of consumers (44%) reported regularly treating themselves, albeit within budgetary constraints. This trend particularly benefited categories like pharmacy, health & beauty, which experienced a 9.5% increase – the strongest performance of any category – and has now seen 56 months of consistent growth.

Average spending within the health & beauty sector rose from £291 in 2024 to £324 in 2025, demonstrating the enduring “lipstick effect” – the tendency to purchase small, affordable luxuries during times of economic uncertainty. Furthermore, 71% of consumers indicated they had invested in wellness activities over the past year. The sector also saw increased participation from men, with 19% reporting a greater focus on beauty compared to a decade ago, and 25% now incorporating skincare into their daily routines, while 12% have explored cosmetic procedures.

The rise of artificial intelligence (AI) also played a significant role in consumer behaviour, with 35% of consumers – and a substantial 70% of Gen Z – utilizing AI tools for budgeting, planning, and shopping. Concerns regarding AI adoption remain, with 50% preferring traditional methods, 42% lacking trust in the technology, and 30% expressing privacy and data concerns.

AI is also reshaping the sales landscape, with 37% of shoppers planning to use AI during Christmas shopping, rising to 53% among those aged 18-34. This demographic is leveraging AI for product research (43%), price comparison (34%), gift idea generation (31%), and personalized alerts (25%).

Cost of living pressures prompted widespread adoption of budgeting strategies, with almost 64% of consumers actively seeking ways to maximize value or reduce the cost of their weekly grocery shopping, and 50% making efforts to curtail discretionary spending. This price sensitivity led to increased instances of ‘skimpflation’ (57%) – a decline in product quality or ingredients – and 76% of consumers expressed concern about ‘shrinkflation’.

Karen Johnson, Head of Retail at Barclays, commented that despite declining economic confidence, strong household financial confidence has supported resilient performance in sectors like travel, entertainment, and beauty. She emphasized the importance of “purposeful spending” and prioritizing enjoyable experiences as potential drivers of UK economic growth.