Credit Card Spending Set to Rise by 8% in 2014

Following reports of increased retail spend throughout December, a new study released by TotallyMoney.com, in partnership with the Centre for Retail Research, reveals that this trend is set to continue throughout the next 12 months.

In 2014 UK consumers are expected to spend over £86 billion on credit cards, carrying out 54 million additional retail transactions. This is an 8% increase on credit card retail spend in 2013 which hit £80 billion.

The report also predicts that overall retail spend is set to rise by 3.4% over the next 12 months with payments totalling £331 billion. Credit card spend is expected to account for over a quarter of this (26%) – the highest proportion since 2008.

Individual transactions

The research estimates that consumers are going to carry out a total of 2.5 billion credit card transactions this year, a 2% increase on 2013. The average spend per transaction is also expected to see a slight increase, rising from £32.50 to £34.20. Overall, individual spend is forecast to reach £2,892 in 2014, 8% higher than last year.

At the height of the recession (2008 – 2010) retail spending on credit cards fell by -7% from £77 billion to £72 billion.  In contrast, consumers reached for their plastic once more in 2013 as spend increased by £4.5 billion on 2012 with each individual spending an average of £2,482.

Consumer confidence on the up

Much of the predicted growth in credit card spend can be attributed to a drastic increase in consumer confidence from April to September last year, a measure which has marginally declined in recent months but is still considerably higher than at the start of 2013.

In addition to this, consumers are reassured by recent media reports of key economic measures showing strong signs of recovery. This includes factors such as the recent fall in inflation to 2% which eases the pressure on the Bank of England to increase rates, unemployment falling to 2009 levels of 7.4%, GDP growth of 0.8% and property prices predicted to rise by 8%.

Essential spend

This increased confidence however may be slightly misplaced. Almost a third (30%) of total credit card spend is actually carried out on everyday essentials such as groceries and other food (alongside alcohol) racking up a total bill of £25.7 billion. Such patterns could indicate consumers are finding it hard to make ends meet. For the 11% who only make the minimum repayment each month, card spending could end up being very costly.

That said, the 59% of credit card holders who pay their bill in full every month may be enjoying the benefits of reward and cashback credit cards. In other news, spending on non-essential items such as summer holidays and big ticket goods such as furniture will also see a boost this year.

Holidays on credit

The research also reveals that more consumers will ignore austerity and splash out on overseas holidays in 2014 using their credit card to pay the bill. In addition to retail spend on credit cards, travellers will rack up a bill of almost £9 billion this year booking trips overseas and spending when they get there. This is £641 million (8%) more than in 2013 when holidays booked using credit cards and spend whilst overseas totalled £8.3 billion.

Again, for 11% of these holiday makers who make the minimum repayment each month, they could still be paying for a £1,000 holiday in 2039 unless they transfer their balance regularly to the next 0% deal.

Alternative payment methods

However, it is clear that old habits die hard as spending on debit cards has almost doubled (45%) from 2007 to 2014, compared to just an 11% increase on credit. Despite a greater rise in credit card spending for 2014, we are still expected to spend 30% less on credit than debit, so despite  a definite shift in consumer spending habits over the past 12 months consumers still remain wedded to their debit cards.

Meanwhile, as spending on debit and credit cards continues to rise, consumers are leaving the house with less cash in their wallets as retail figures project a 1% decline since 2013 and nearly a 5% decline in the use of cheques.