The volume measure provides an estimate of the amount of goods and services purchased by households. In Q4 2012 it increased by 0.4%, meaning it was 3.9% below the peak of pre-recession spending in Q4 2007.
The current price value of household spending (inflation included) shows how much UK households spent. In Q4 2012 it increased by 1.2% on the quarter, meaning it was 12.2% higher than Q4 2007.
The following sections of this bulletin analyse household expenditure according to product, spending per head and prices. An analysis is also included on spending on goods and services by households according to whether they are considered essential or non-essential purchases.
Household Final Consumption Expenditure (HHFCE) includes spending on goods and services except for: buying or extending a house, investment in valuables (paintings, antiques) or purchasing second-hand goods. Explanations for these exceptions and the related concepts are available in the Consumer Trends guidance and methodology section.
Household expenditure is used in the National Accounts to measure the contribution of households to economic growth and accounts for about 60% of GDP. There are two 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.
Analysis in this section of the Statistical Release is conducted from 1997 because this is the period from which revisions were applied in Blue Book 2012.
From 1997, household final consumption expenditure:
Increased in current prices to £220.5 billion in Q1 2008, before falling to £212.2 billion in Q2 2009, then returning to predominantly positive growth to reach £247.2 billion in the present quarter.
Increased to £228.5 billion in volume terms in Q4 2007, before falling to £213.3 billion in Q2 2009. It increased slightly between Q3 2009 and Q4 2010, then fell for three quarters before increasing to reach the Q4 2010 level in Q3 2012.
The pre-2007 increases in household spending are a consequence of households facing higher prices and buying more goods and services. However, in 2008 and 2009 households spent less because they bought less. Since 2009, household spending has increased, but the volume of goods and services purchased has been broadly flat.
In Q4 2012, the value of household spending in current prices increased by 1.2% on the quarter, and by 4.3% on the same quarter in 2011. The volume measure of household spending increased by 0.4% on the quarter and 1.6% on the same quarter in 2011.
The increases in current price estimates and relative weakness (small increases or falls) in the volume estimates (inflation adjusted) signify households are spending more for a lower volume of goods and services than in the past.
In Q4 2012 the value of current price spending per head was £3,893, an increase of £38 on the previous quarter. This continued the increases of the past year; between Q4 2011 and Q4 2012 household spending per head increased by £130. When comparing the annual spending, UK households are now spending £463 more than in 2011, an increase of 3.1%.
In Q1 1997 the value of household spending per head in current prices was £2,155. It reached £3,599 in Q4 2007 before falling to £3,435 in Q2 2009. Since that date the current price expenditure per head has continued to increase to reach the Q4 2012 level of £3,893.
In the latest quarter, the largest category of spending per head was ‘Housing’ (which includes spending on electricity, gas and rental charges), followed by ‘Transport’ (which includes spending on vehicles and their running costs and other modes of transport). Spending on ‘Housing’ this quarter reached £962, an increase of £20 on Q3 2012. Together, ‘Housing’ and ‘Transport’ account for almost 40% of household expenditure.
The largest component of ‘Housing’ expenditure is the estimate for ‘Imputed rentals for housing’. This is primarily owner-occupied rentals (a measure of what an owner would pay to rent their home). In the latest quarter ‘Imputed rentals for housing’ increased by £10 to £512, reflecting a strengthening housing rental market. In volume terms, expenditure has increased by 3.0% when compared with Q3 2012, and 2.3% when compared with Q4 2007.
Spending on ‘Transport’ was flat this quarter, maintaining its level of £564. ‘Operation of vehicles’ (which includes vehicle fuels and maintenance costs) is the largest component of ‘Transport’, with current quarterly spending per head at £247. In volume terms, expenditure has increased by 0.5% when compared with Q3 2012, but has fallen by 11.8% when compared with Q4 2007.
In volume terms (adjusted for inflation), spending on ‘Housing’ made the largest contribution to the positive growth in Q4 2012, increasing by 1.4% on the quarter. Spending on ‘Gas’ made the largest contribution to the increase, increasing by 8.2% when compared with Q3 2012. Whilst in volume terms, spending on ‘Housing’ is still 1.2% lower than Q4 2007 (pre recession), spending in current price terms has increased by 35.7%.
‘Food and non- alcoholic beverages’ also showed strength this quarter, increasing by 1.7% on Q3 2012, the largest positive growth since Q2 2010. This is an increase of 2.7% when compared with Q4 2011. Spending on ‘Meat’ made the largest contribution to Q4 2012, increasing by 3.8% when compared with Q3 2012.
The largest negative contribution to growth this quarter can be seen in ‘Miscellaneous’ which fell by 2.0%. In particular, there was a large decrease in sales of ‘Life insurance’ which fell by 34.1% in volume terms. In 2012, spending on ‘Life insurance‘ fell by 18.0%, reaching its lowest level since 2008, when spending between 2007 and 2008 fell by 33.7%.
The household expenditure measure of prices is an important component of the GDP deflator which is used to determine price pressures in the economy.
This quarter the seasonally adjusted household expenditure measure of prices (the deflator) increased by 0.8%. The household expenditure deflator (seasonally adjusted) is now 2.6% higher than in Q4 2011. This continues the trend of positive deflator growth since 2009 Q2, indicating the increased prices that households face when purchasing goods or services.
Although the household expenditure measure of price inflation is positive (indicating increasing prices) annual growth in 2012 is at its weakest since 2009 indicating that the rate of increase in prices has slowed.
In Q4 2012, the largest increases in percentage terms in the household deflator was seen in ‘Education’ which grew by 19.5%.This increase is mainly as a result of increases in tuition fees introduced for the academic year 2012/13.
It should be noted that the CPI and RPI are the two official main measures of inflation. From Blue Book 2011, CPI has been used to deflate estimates of Household Expenditure.
Goods and services can be separated into three main categories of spending, non-discretionary (essential), semi-discretionary and discretionary (non-essential). Although there is no absolute definition of discretionary and non-discretionary spending, some purchase such as food and energy would seem to be essential and others such as alcohol and tobacco are not so essential. Items such as clothing and footwear could be said to be semi-discretionary, as they are essential, but the decision on quality and frequency of purchase may vary.
The value of household purchases (current price) fell in 2009 for all three types of spending. In 2010, households spent more on discretionary, non-discretionary and semi-discretionary purchases. However, the recovery of each type of purchase was different.
Non-discretionary spending grew more in value in 2010 and 2011 than the other two types of spending indicating households continued to purchase essential items. However, in 2012 semi-discretionary spending growth was largest at 5.3%.
The volume measure of household spending shows that the amount of goods and services purchased fell for all three types of spending in 2008. However, the volume of discretionary goods and services purchased fell by more than non-discretionary, 4.2% compared with 0.1%. Despite the volume of purchases falling in 2008, the value of non-discretionary spending continued to increase until 2009.
In 2012 the strongest volume growth was in semi-discretionary goods and services, which increased by 4.5%.
The main component of non-discretionary (essential) spending is ‘Owner occupier rental’ (a measure of what an owner would pay to rent their own home). In 2012, current price spending increased by 46.5% compared with 2007. This reflects the strength of prices in the rental market, however it is not a reflection of the mortgages paid.
The second largest contributor to non–discretionary spending is ‘actual rentals’ which also increased strongly.
The main component of discretionary spending in 2012 was ‘Restaurants and cafes’, which includes all spending on food and drink purchased for consumption away from the home.
In 2008, the amount of goods and services purchased from ‘Restaurants and cafes’ fell by 2.8%. However, current price spending increased by 1.5%, the lowest rate of increase for over ten years. This indicates that households spent more in 2008, but got less as a result of inflationary pressures.
In 2009 households spending fell in both value and volume terms, with falls of 4.6% and 7.5% respectively. This shows how households reduced the amount of ‘Restaurants and cafes’ purchases (as it is non-essential), and therefore reduced the value of their spending in this area.
Between 2010 and 2012, the value of spending rose to above 2007 levels, while the volume of spending has not yet reached pre recession levels.
The main component of semi-discretionary spending in 2012 was ‘Clothing – Garments’.
The volume of garments purchased by households in 2012 was four times greater than in 1997, while current price spending has doubled.
In 2008 households current price spending on clothing slowed to 1.7% and then fell by 0.2% in 2009. However, the volume of clothing purchases continued to show strength throughout the recession period, with growths of 10.2% in 2008 and 9.7% in 2009. With households purchasing more goods but spending less, this suggests either lower prices across the sector or households choosing to purchase lower priced alternatives.
From 2008 onwards, ‘Garments’ made the largest contribution to the value of semi-discretionary spending. Previously, the largest contribution was from purchases of ‘Motor cars’.
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 Q4 2012, the revisions to total household final consumption expenditure have been made from the first quarter of 2011.
Revisions between the previous edition of Consumer Trends (Q3 2012) and the latest HHFCE estimates are summarised in Table 1 ‘Revisions to Household Final Consumption Expenditure’. They reflect updated data from suppliers, as well as adjustments to HHFCE as a result of the GDP balancing process.
|Revisions to value (current prices)||Revisions to growth (current prices)||Revisions to growth (volume measure)|
Consumer Trends guidance offers full details regarding this publication.
Date of this publicat ion: 27 March 2013.
Household Final Consumption Expenditure estimates produced in Consumer Trends are produced according to the National Accounts timetable. The preliminary estimate of GDP for the first quarter of 2013 will be published on 25 April 2013, followed by the second estimate of GDP on 23 May 2013. The next full set of Quarterly National Accounts will be published on 27 June 2013.
Stats Net Community Page.
Some of the most important economic statistics produced by ONS relate to the spending and income of households. Household expenditure comprises almost two thirds of expenditure in the UK economy, and the compensation of employees paid to households (predominantly wages and salaries) accounts for close to half of the income in the UK economy. The ONS also produces the measure of UK household saving.
This community forum has been designed to promote dialogue, share information and maintain close liaison between the suppliers, producers and users of these household statistics. It will cover topics drawn out in our regular statistical publications (Consumer Trends quarterly release – covering household final consumption expenditure, and the Economic Position of Households article), as well as highlighting one off articles and future developments.
Basic Quality Information for Consumer Trends Statistical Bulletin
Summary Quality Reports
A Summary Quality Report (147.1 Kb Pdf) for this Statistical Bulletin can be found on the National Statistics website.
Key Quality Issues.
Household expenditure volume series are chainlinked annually. Estimates in this Consumer Trends are now based on 2009 price structures, i.e the chained volume measure estimate in 2009 equals the current price value of expenditure in 2009.
Growth in each year up to and including 2009 is calculated at average prices of the previous year. Growth from 2009 onwards is calculated at average prices of 2009. Volume series are only additive for the most recent periods; annual data for 2009 onwards and quarterly data for quarter one 2010 onwards.
Common pitfalls in interpreting series: 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 quite clear when they do occur.
Household Final Consumption Expenditure estimates published in Consumer Trends are a component of the 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 Quarterly National Accounts, Quarterly Sector Accounts and Financial Accounts tables are available in the United Kingdom Economic Accounts.
Details of the policy governing the release of new data are available from the press office.
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