Spending slumps as consumers feel pinch

Households' spending has recorded its weakest annual growth since 2013 across the past three months as the recent heatwave failed to revive the high street's fortunes, according to an index.

Consumers have been reluctant to spend. PICTURE: GETTY/ISTOCKPHOTO

Overall consumer spending fell by 0.3 per cent year-on-year on average across the second quarter of 2017, marking the weakest quarterly growth seen since the third quarter of 2013.

There are also signs that the “experience economy” – which sees people paying to do something rather than buying a physical possession – is starting to be hit as consumers feel the pinch. Recreation and culture spending has 
fallen for the first time in nearly four years, Visa’s UK Consumer Spending Index showed.

The report said the figures are further evidence that rising living costs and slow wage growth are squeezing people’s disposable incomes, making them shift the focus of their shopping habits towards buying essentials rather than big ticket purchases such as furniture.

Face-to-face spending on the high street was down by 2.4 per cent annually in June, marking the second month in a row where there has been a fall.

Online spending was up by annually 2.9 per cent in June – a weaker increase than a 6.8 per cent annual uplift recorded in May.

Overall, spending on 
transport and communication was down by 5.8 per cent year-on-year in June, while spending on household goods fell by 3.4 per cent, spending on recreation and culture fell by 1.2 per cent, and spending on clothing and footwear decreased by 0.5 per cent annually.

It was the first time that spending on recreation and culture had fallen since July 2013.

Meanwhile, spending on miscellaneous goods and services, which includes trips to hairdressers and buying jewellery, was up by 5.7 per cent annually, while spending on hotels, restaurants and bars increased by 4.9 per cent.

Spending on health and education increased by 2.2 per cent annually in June, while food and drink spending increased by 1.9 per cent.

The index, compiled by Markit, uses spending on Visa cards as a base and adjusts the figures to take account of all spending.

Kevin Jenkins, UK and Ireland managing director at Visa, said inflation is starting to affect shoppers’ habits, with people diverting their spending towards essentials.

“Spend on recreation and culture dropped for the first time in nearly four years.”

Annabel Fiddes, an economist at IHS Markit, said: “The marked deterioration in household expenditure trends since last year comes at a time when households are facing an increasingly challenging scenario of rising living costs and weaker wage growth.”