- Consumer spending rises +1.6% year-on-year in July
- Hotels, Restaurants & Bars is strongest performing sector (+8.9%)
- Transport & Communication records a further drop in spending (-3.8%)
- Expenditure increases at softer pace in e-commerce channels (+2.8%), while face-to-face spending rises for first time since April (+1.6%)
The latest Visa UK Consumer Spending Index data pointed to a further rise in expenditure at the start of Q3, with the rate of growth improving from +0.9% year-on-year in June to +1.6% in July. This continued to signal a relatively soft patch of growth, however, and was weaker than rates of increase seen at the start of the year. Of all eight monitored broad sectors, Hotels, Restaurants & Bars saw the steepest rise in spending (+8.9%), following a marked slowdown in growth in June (+3.4%). Recreation & Culture (which includes trips to the cinema and theme parks) (+5.2%), Food, Beverages & Tobacco (+5.1%) and Clothing & Footwear (+3.9%) sectors also saw solid increases in spending. Notably, it was only the second time in the past five months spending in Clothing & Footwear categories had increased. In contrast, Transport & Communication saw spending drop again in July, albeit at the slowest pace in the current threemonth sequence of decline (-3.8%). E-commerce saw a further rise in expenditure in July (+2.8%), though the rate of growth slowed since June (+4.6%). At the same time, spending through face-to-face channels increased for the first time in three months (+1.6%).
Kevin Jenkins, UK & Ireland Managing Director at Visa commented: “July’s data suggests that UK consumer spending is holding up despite the ongoing uncertainty following the referendum, albeit at lower levels of growth than we’ve seen in the last couple of years. Looking at the last three months, the Index indicates that consumers remain cautious with their spending. Overall growth is hovering nearly one percentage point below the average seen over the past two years.
“Looking at the sectors, the longer term trend we’ve seen for increased spending on leisure and recreation is enduring. And the high street saw its strongest annual growth rate in five months with clothing retailers in particular bouncing back after a fall in June.”
Annabel Fiddes, Economist at Markit said: “Consumer spending growth improved from the recent lows seen in May and June to rise by +1.6% on an annual basis in July. However, the latest Visa UK Consumer Spending Index data suggest that expenditure remains on a lower overall growth trajectory as consumer confidence remains fragile.
“Nonetheless, it appears consumers enjoyed the warmer weather in July by increasing spending on new clothes, meals out and day trips. Hotel, Bars & Restaurants saw its annual rate of expenditure growth recover from June’s recent low to a five-month high of +8.9%. Notably, we saw the first upturn in high street spending for three months, while expenditure growth eased across e-commerce channels.
“Although the July data point to signs of improvement, anxiety around Brexit and a slowing private sector economy may pose further downside risks to expenditure growth for the rest of 2016.”
E-commerce and Face-to-Face Spend
UK consumer spending increased through both e-commerce and face-to-face categories in July. Moreover, it was the first time that expenditure growth has been simultaneous across both sectors since April.
E-commerce noted the fastest rate of growth (+2.8% year-on-year). However, this was down from +4.6% in June and slower than the average seen over the past couple of years.
Meanwhile, face-to-face spending rose for the first time in three months, albeit at a modest rate (+1.6% on the year). This was an improvement on the -0.8% and -1.3% falls seen in May and June, respectively.
Spending by Sector
Visa’s UK Consumer Spending Index monitors eight broad sectors. Summary data for annual growth rates in June & July 2016, which are not adjusted for seasonality and trading days, are provided in the table opposite.
Expenditure increased in five of the eight broad sectors during July. Growth was led by Hotels, Restaurants & Bars, where the rate of expansion improved from a near three-and-a-half year low in June. Solid increases in spending were also recorded in Recreation & Culture, Food, Beverages & Tobacco and Clothing & Footwear categories. That said, the rate of growth in Recreation & Culture was softer than the average for the past two years.
Reduced spending was reported in Transport & Communication for the third month in a row. Expenditure also fell in Misc. Goods & Services (which includes hairdressing and jewellery) and Health & Education.
What UK businesses are saying
Visa is tracking the sentiment of several small businesses across the UK on a monthly basis, asking about their views on the economy, business conditions and forecasts for the month ahead.
Josh Beer, The Illustrious Pub Company, Cambridgeshire:
“Overall, this was a good month for us with revenue up 6.2% compared to last month. A lot of this was due to the performance of our outdoor catering business, as we were called in to provide food for BBQs, weddings and corporate summer parties. “Sales at our pubs also benefited from the Euros and July’s heatwave. In our site where a large screen TV had been installed sales surged, and among our locations, those that allowed customers to dine al fresco were the best performers.”
Gayle Haddock, Carry Me Home children’s clothes, London:
“July was a quieter month for us. We don’t think that is down to the impact of the Leave vote. Instead, it was more likely because many of our customers have gone away with their families, while the mid-July heatwave also caused a drop in our online traffic, with the site receiving fewer visitors on the hottest days of the month. “We’ve also noticed a fall in our international sales. But we can’t yet say whether this is because the fluctuating currency exchanges have made overseas consumers more hesitant with making purchases in Sterling.”
Tony Bailey, Top Notch Hair & Beauty, Manchester:
Tony Bailey, Top Notch Hair & Beauty, Manchester: “The warmer weather brought more people out and onto the high street, but at the same time many of our regulars have been on holiday abroad, or away on last minute staycations. This meant that we weren’t able to benefit from the payday surge that we often get towards the end of the month. But the customers coming through our doors did treat themselves well, as the initial concerns about the UK’s vote to leave the EU appears to have died down for many of them.”
Official Data Comparisons
Annual percentage changes in Visa’s UK Consumer Spending Index have an excellent relationship with a number of official data series, in particular Gross Domestic Product (GDP) from the Office for National Statistics (ONS).
Most recently, Visa’s UK Consumer Spending Index successfully tracked a further expansion of GDP in the second quarter of 2016.
UK household expenditure rose further in July, with the annual pace of growth improving from the marginal rates seen in May (+0.8%) and June (+0.9%) to register a +1.6% increase. That said, the pace of expansion remained slower than the average seen over the opening quarter of 2016 (+2.4%) and suggests that the growth trajectory for consumer spending has softened.
The slowdown in overall growth coincides with a decline in consumer confidence, which has fallen to its lowest level in three years in July following the Brexit vote.
Nonetheless, economic fundamentals remain robust, with unemployment at its lowest for 11 years and wages rising in real terms. Historically low interest rates also continue to benefit both consumers and businesses alike. All these factors are supportive of spending growth, though the health of the UK economy may weaken as uncertainty surrounding the Brexit vote persists and global economic growth remains in a soft patch.
Visa’s UK Consumer Spending Index uses card transaction data to provide a robust indicator of total consumer expenditure across all payment methods and is used by a range of stakeholders to gain insights into consumer spending, including HM Treasury. It is based on spending on all Visa debit, credit and prepaid cards which are used to make an average of over 2.3 billion transactions every quarter and account for £1 in £3 of all UK spending. Working with Markit, these card spending data figures are adjusted for a variety of factors such as card issuance, changing consumer preferences to pay by card rather than cash and inflation. These adjustments mean that these data are distinct from Visa’s business performance and the Index reflects overall consumer spending, not just that on cards.