Research into the spending habits of 2,000 UK consumers shows households are ring-fencing their holiday spending despite their personal finances coming under pressure from persistent above-target inflation and elevated interest rates.
The new research shows that households expect ongoing erosion of spending power in 2024. Nearly half of consumers (44.0%) expect weaker finances this year compared to 2023.
But holidays have become a non-negotiable area of spending for many consumers and are increasingly considered a ‘necessity’ rather than a ‘luxury’. Nine in 10 (86.4%) of UK consumers typically go on holiday.
Even among those that expect their personal finances to weaken in 2024, a third (33.5%) plan to increase holiday spending this year compared to 2023, while just a quarter (27.1%) expect to reduce their holiday spend.
Gen Zs and Millennials are under more pressure to cut back holidays compared to those aged over 60 years old. Importantly, rather than stop spending, Gen Zs and Millennials are more likely to find cheaper holiday alternatives. Trading down may come in the form of fewer days away, shorter haul flights, or domestic rather than international holidays.
The report also found that consumers consider dynamic pricing to be most acceptable for hotels and airline fares. This reflects expectations of stable and transparent prices for essentials in order to manage budgets, whereas households have become more used to variable pricing based on seasonality, demand and booking times for discretionary purchases like airline tickets.
Commenting on the report’s findings, David Scott, Head of Consumer Industries at NatWest, said:
“The travel industry will be heartened to hear that a fifth of consumers are planning to increase their holiday spending this year. This shows just how much Britons value travel and exploration, even at times of high financial pressure."
“With peak holiday booking season now upon us, it will be important for travel agents to understand changing shopping behaviours. Consumers consider dynamic pricing to be more acceptable for hotels and airlines than any other category, but the industry should still be cautious to maintain customer trust and loyalty."
“We saw inflation fall significantly at the end of 2023, and we expect it to fall further in 2024. This puts more spending power in the pockets of UK consumers and should help them to increase their spending in 2024.”
Retail Economics Chief Executive Richard Lim said:
“Holidays have become a critical, almost non-negotiable area of spending for households. Most consumers are determined to get away this year, particularly as they look to ‘catch up’ on travel after holiday plans were derailed during the pandemic."
“Consumers are now unwilling to cut out holidays even as personal finances come under pressure from heightened interest rates. Instead, households are becoming savvy by embracing off-peak travel, turning to cheaper short-haul destinations and looking out for last-minute deals."
“But squeezed budgets will mean households inevitably have to cut back elsewhere. This includes spending on home categories being a lower priority compared to holidays and essentials, as elevated borrowing costs widen the scope of households under pressure, particularly among those who recently renewed mortgages or rental contracts.”
