Visa’s UK Consumer Spending Index signalled robust growth in household expenditure at the start of the fourth quarter. On an annual basis, spending rose +2.5%, up from +2.3% in September and the strongest rate of increase in six months. This contrasted with relatively muted expenditure growth over the summer which coincided with the Brexit vote.
Spending increased through both e-commerce and face-to-face channels in October. The former continued to lead overall growth, rising by +4.3% year-on-year, while it was the first time that face-to-face expenditure had increased since July (+1.8%).
Hotels, Restaurants & Bars saw the strongest annual rate of expenditure growth of all eight broad sectors (+9.0%). It was also the fastest rate of growth seen in this category since February. Stronger rates of expenditure growth were also reported in Recreation & Culture (+7.4%) and Food & Drink (+4.7%). Clothing & Footwear meanwhile saw spending increase for the first time since July, and at the quickest pace since September 2015 (+4.7% on the year).
The only sectors to see spending decline were Transport & Communication (-1.4%), Misc. Goods & Services (-2.0%) and Health & Education (-3.2%).
Kevin Jenkins, UK & Ireland Managing Director at Visa commented:
“Consumer spending growth rose to a six month high in October. Talk of potential price rises does not appear to have dented consumers’ confidence, with spending up 2.5% on the year, on a par with pre-referendum levels.
“The experience economy continued to fuel this growth. Hospitality and leisure were the best performing sectors once again, boosted perhaps by the half term break and Halloween, with a noticeable increase in spend on food and drink.
“We’ve also seen two strong comebacks this month. Clothing and footwear bounced back strongly from a disappointing dip in the previous month, up 4.7% in October, and the highest level of growth since September 2015. New season stock, combined with a chilly start to winter created the perfect conditions for the high street to rebound from last month’s flat line.
“As we get closer to the all-important Christmas trading season, it will be interesting to see whether the strong momentum in October continues into Black Friday and beyond.”
Annabel Fiddes, Economist at IHS Markit said:
“UK consumer spending showed signs of resilience at the start of Q4, according to the latest batch of Visa UK CSI data. Moreover, October saw the fastest increase in spending on an annual basis for six months (+2.5%). This indicated a solid performance after relatively disappointing growth through most of the summer. Encouragingly, growth was supported by a renewed upturn in face-to-face spending, alongside solid growth in e-commerce expenditure.
“Broad spending category data indicated that households continued to enjoy day trips and meals out, with Hotels, Bars & Restaurants and Recreation & Culture leading the overall sector growth rankings. Nonetheless, Clothing & Footwear also had an impressive performance in October, rising for the first time since July and at the quickest rate in just over a year.
“While the data paint a very encouraging picture of household spending, clouds continue to gather on the horizon as uncertainties around Brexit continue to dampen confidence and growth forecasts for the year ahead. Furthermore, rising expectations of greater inflationary pressures could lead to a tighter squeeze on households’ purchasing power in the coming months.”
Visa’s UK Consumer Spending Index
E-commerce and Face-to-Face Spend
UK household spending increased through both face-toface and e-commerce channels in October, which was the first time that growth has been registered in bothzcategories simultaneously since July.
Higher overall expenditure continued to be led by solid growth in e-commerce categories. Expenditure through e-commerce channels rose +4.3% on the year, which was down from +5.9% in September but nonetheless solid.
Face-to-face spending increased at a moderate pace in October (+1.8% year-on-year). Notably, it was the first increase in face-to-face expenditure since July, after no change in September and a fall in August.
UK CSI: E-commerce vs Face-to-Face*
Spending by Sector
Visa’s UK Consumer Spending Index monitors eight broad sectors. Summary data for annual growth rates in September & October 2016, which are not adjusted for seasonality and trading days, are provided in the table opposite.
Expenditure growth was led by Hotels, Restaurants & Bars, which saw the strongest annual rate of expansion since February. Stronger increases in spend were also reported in Recreation & Culture and Food & Drink categories. Clothing & Footwear retailers meanwhile saw the first year-on-year increase in expenditure since July, with the rate of expansion the steepest since September 2015. Higher spending was also recorded in Household Goods categories.
At the same time, lower expenditure was registered in Transport & Communication, Health & Education and Misc. Goods & Services (which includes jewellery).
Annual Growth Rates By Sector*
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:“October tends to be a good month for us as people settle back into their routine following holidays and new winter menus are launched, and business in October saw a marginal pickup of 0.4% compared with September. We look to Christmas parties and gatherings as key revenue drivers for the rest of the year. Although these haven’t been totally booked up yet, it feels as though people are increasingly leaving making bookings late. There do seem to be concerns about inflation and petrol price rises. Bearing this in mind we’re taking a cautious view as we look to the future.”
Imogen Hawthorne, Paisley Immy Cakes, Birmingham: “While our sales in October were quite standard for this time of the year, there were two positive factors that we noticed this month. First, we saw an increase in orders during half term, mainly for children’s parties. Second, our customers were in the mood to spend as more were opting for our top of the range cakes for their special occasions. Looking forward, we’re slightly worried about rising inflation and how it will impact our costs and sales.”
Quan Nguyen, Chi Cafe, London: “We had a good month in October with sales significantly higher than in previous months. The change in the weather and the hot soup range we have may have helped draw more customers through the door. On the other hand, our stock costs have risen in the past few weeks which means we will be under increasing pressure to keep our prices low for our customers in the coming months.”
Official Data Comparisons
Annual percentage changes in Visa’s UK Consumer Annual % Change 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 (CSI) successfully tracked an expansion of GDP in the third quarter of 2016. Consumer spending had a strong start to the final quarter of the year, rising by +2.5% on an annual basis, up from +2.3% in September. Expenditure also rose on the monthly and quarterly measures in October, to signal improved overall growth momentum after a slowdown in the lead up to and after the Brexit vote this summer.
The latest data coincides with a largely positive economic backdrop, despite the ongoing uncertainty around the decision for the UK to leave the EU in the near future.
Notably, employment is at a record high, inflation is only marginal, and interest rates are historically low. All these factors have helped to support expenditure growth, but there still remain a number of threats to the outlook. The Bank of England forecasts both unemployment and inflation to increase in the coming months, which may therefore squeeze spending power and dampen economic and expenditure growth as we head towards 2017.
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.
UK CSI & Household Expenditure
UK CSI & GDP
UK CSI & Consumer Confidence