Discretionary household consumption expenditure in the UK: measurement and evaluation

Abstract

ABSTRACT The current cost-of-living crisis which is afflicting several countries has hastened the need to be able to distinguish between essential and inessential items of spending. Hence, the principal purpose of this paper is to develop a series on UK discretionary household consumption expenditure through making maximum use of publicly available data that are provided by the Office for National Statistics. The Family Spending workbooks offer information on the weekly consumption patterns of the ten income deciles, while the publication, Consumer Trends, contains quarterly time-series data on the expenditure by the entire household sector on different goods and services. From an analysis of both types of data, we identify 28 three-digit COICOP categories of consumption as being discretionary, constituting, on average, approximately 20% of total domestic household expenditure over the interval, 1985Q1 – 2019Q4. Our approach towards constructing a series on discretionary consumption receives vindication from subsequent empirical results, which show that this variable enjoys a more significant and stable relationship with a reputable measure of consumer confidence than each of the traditional aggregates to be found within Consumer Trends, i.e. spending on durable goods, semi-durable goods, non-durable goods, and services.