Visa’s UK Consumer Spending Index, compiled by IHS Markit, pointed to a renewed fall in consumer spending at the start of the third quarter. Although the reduction was only slight (-0.9% on the year), this compared to increases in expenditure in the prior two months.
Channel data signalled that the decrease in total spend was broadbased with both eCommerce and Face-to-Face categories noting lower expenditure on an annual basis for the first time since April.
The quickest fall in spend was registered in Face-to-Face categories (-1.2% year-on-year). This followed a slight increase during June (+1.1%).
However, the pace of reduction remained weaker than those seen earlier in 2018. Meanwhile, eCommerce expenditure fell by -0.5% on the year, after a marginal rise during June (+0.4%). (Continues overleaf)
Mark Antipof, Chief Commercial Officer at Visa, commented:
“Food and drink, followed by hotels, bars and restaurants, saw the highest spending increases of all categories in July, which the warm weather and football clearly contributed to. However, retailers of household goods and those operating within recreation and culture noted significant declines, an indication that household budgets are stretched.”
“Retailers had a difficult time in early 2018, and while there was some respite in May and June, July’s fall in spending is concerning, particularly as we look ahead when the impact of the interest rate rise and back-to-school costs will likely put further pressure on Britons’ wallets.”
Annabel Fiddes, Principal Economist at IHS Markit, said:
“The Visa UK CSI pointed to a renewed fall in household spending during July, as it seems the warm weather and World Cup failed to help lift spending for the third month in a row. However, the rate of reduction (-0.9% year-on-year) was not as strong than those seen earlier in the year. “
“Expenditure trends have been relatively subdued in 2018 so far, which can be linked in part to disappointing growth in real earnings despite a tight labour market, while the recent interest rate hike by the Bank of England is likely to add further pressure on households’ budgets. Combined with anxieties around the ongoing Brexit negotiations and lower consumer confidence, it seems unlikely that expenditure trends will improve in the near-term.”
Half of the broad monitored spending categories signalled lower expenditure at the start of the third quarter. The quickest reduction was seen in Transport & Communication (-4.1%). Marked falls were also seen in Recreation & Culture (-3.9%) and Household Goods (-3.2%) categories.
Where expenditure rose, the quickest increase was recorded at Food & Drink retailers where spending increased at the second-fastest pace for 15 months (+3.5%). Hotels, Restaurants & Bars also saw strong growth in expenditure (+2.5%), though the pace of expansion softened from June’s recent high of +5.4%.
eCommerce and Face-to-Face Spend
Household spending fell across both eCommerce and Face-to-Face categories during July, which contrasted withincreases across both splits in the prior two months.
Face-to-Face expenditure declined by -1.2% compared to a year ago, following a +1.1% rise in June. That said, the rateof reduction was much softer than those seen at the start of the year.
At the same time, spending in eCommerce categories also fell slightly at the start of the third quarter (-0.5% year-onyear), after rising by +0.4% in June.
Spending by Sector
Visa’s UK Consumer Spending Index monitors eight broad sectors. Summary data for annual growth rates in May, June and July, which are not adjusted for seasonality and trading days, are provided in the table opposite.
Food, Beverages & Tobacco categories saw the strongest increase in spend during July, followed by Hotels, Restaurants & Bars. Expenditure also rose across Clothing & Footwear, thereby extending the current run of growth in this sector to three months, to mark the best performance since late 2015. Spending meanwhile rose marginallyacross Health & Education categories.
Of the four monitored sectors that registered lower spending volumes during July, the steepest reduction was seen across Transport & Communication. Expenditure meanwhile fell at a quicker pace in Recreation & Culture categories, while a renewed decline was seen across Household Goods. Expenditure in Misc. Goods & Services categories (which includes jewellery, hair and beauty) meanwhile fell at a slightly faster pace.
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). Visa’s UK Consumer Spending Index (CSI) data successfullypointed to a slowdown in GDP growth in the opening quarter of 2018. While the CSI data suggest that growthmomentum had improved over the second quarter, Julyfigures pointed to a disappointing start to the third quarter.
On an annual basis, total expenditure fell -0.9% in July, thereby ending a two-month sequence of expansion. Thatsaid, the rate of reduction was only slight and softer than those seen earlier in 2018.
Relatively subdued expenditure trends in 2018 to date coincide with muted consumer confidence, with data fromthe European Commission showing sentiment remaining close to a post-Brexit low as uncertainty towards theoutlook continues to weigh on consumers. At the same time, wages have not been rising as strongly as anticipated.
Labour market data published by the Office for National Statistics (ONS) show unemployment is at a four-decade low of 4.2%, but growth of total average weekly earningssoftened in the three months to May (+2.5% on the year),and is running only slightly above the increase in living costs (+2.4% year-on-year). Finally, the recent hike in interest rates by the Bank of England is likely to add furtherpressure to households going forward.
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 intoconsumer 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.