News
Adam Leyland 10 Jul 2017 10:56am

Consumer spending at lowest rate in nearly four years

UK household expenditure fell for the second month in a row in June, rounding off the weakest quarter for expenditure since Q3 2013

Consumer confidence has also weakened in the past three months and is at one of its lowest levels in four years, suggesting that consumer spending may struggle to re-enter growth territory in the near-term.

Visa's UK Consumer Spending Index - compiled by Markit - found that household expenditure declined slightly on an annual basis for the second straight month in June, however it softened slightly from -0.9% to -0.3 year-on-year.

Face-to-face spending fell for the second month in a row (-2.4% on the year), albeit at a softer pace than in May (-5.3%). Meanwhile expenditure through e-commerce rose by +2.9%, a fall from the +6.8% seen in the previous month.

Half of the categories noted lower expenditure, with transport and communication (-5.8%) and household goods (-3.4%) reporting the biggest falls.

The research suggested a number of factors contributing to the decline in consumer spending, pointing to rising living costs, uncertainties about the direction of the UK economy and subdued wage growth.

Recent Office for National Statistics (ONS) data backs up that argument, after it found that real wages declined by -0.6% on the year in the three months to April, down from -0.4% in the previous three-month period.

“June data provides further evidence that an increase in the cost of living, coupled with slowing wage growth, are beginning to squeeze household disposable income,” said Kevin Jenkins, UK and Ireland managing director at Visa.

“It’s clear that inflation is beginning to affect shopping habits too, with consumers diverting their spending to essentials.

“The experience sector – which the Index has shown consistently outperforming in recent years – has started to feel the impact too. Spend on recreation and culture dropped for the first time in nearly four years,” he added.

Meanwhile the decline in consumer spending reflects wider contractions in the UK services sector more generally.

Last week a “triple whammy” of disappointing Purchasing Managers’ Index (PMI) survey readings saw growth in the sector fall again in June, with business optimism dropping to its second-lowest level since December 2011

Business confidence and decision-making took a hit as a result of last month’s general election, the IHS Markit / Chartered Institute of Procurement & Supply PMI Index found. However, it also noted the figures still showed the 11th consecutive month of expansion.

Furthermore, a study by BDO last month warned that the services sector was on the edge of recession. It found that the output index for the sector – which measures how businesses’ order books will fare over the next three months – fell from 95.3 in April to 95.0 in May, the lowest level since June 2013.

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