Consumer spending falls amid pay freeze and price rises

CONSUMER spending fell for a third month running in July, highlighting how rising prices and a lack of pay rises are causing the public to tighten their purse strings.

The data from Visa reflects all consumer spending and not just that on cards, giving a better picture of how Britons are being more careful with their money.

It has been four years since such a sustained drop has been seen in consumer spending, indicating how the pressure on consumers’ finances has intensified – and adding strength to the argument for the Bank of England holding the base rate at historic lows.

“This was the first time overall spending had fallen for three consecutive months since February 2013,” said Kevin Jenkins, UK & Ireland managing director at Visa. “The figure provides further evidence that rising prices and stagnant wage growth are squeezing consumers’ pockets.”

Visa – which produced the data with IHS Markit – said July’s spending was 0.8pc below the level seen the same month a year ago, accelerating from the 0.2pc drop in June, and only slightly below May’s 0.9pc fall.

Spending on transport was the hardest hit, suffering a 6.1pc decline – the same level as seen in June. Purchases of clothing and footwear were close behind, at 5.2pc lower, followed by household goods, which suffered a 4pc drop. Health and education was down 2.4pc, and food, beverages and tobacco slipped 0.5pc.

However, it was not bad news across the board. Hotels, restaurants and bars enjoyed a 6pc uplift, and recreation and culture was 1.3pc higher.

Mr Jenkins attributed their positive performances to the stay-at-home Britons responding to sterling’s decline in value as a result of the EU referendum. “There were still some bright spots in July, such as hotels, restaurants and bars reporting an increase,” Mr Jenkins said. “The sector is likely to have benefited from an early surge in summer staycations, as the weak pound made holidaying at home more attractive.”

Annabel Fiddes, principal economist at IHS Markit, said: “The UK economy has been expanding at a relatively modest pace, while households have been facing strong increases in living costs and a slowdown in earnings growth. Notably, the latest ONS figures show total real pay falling at the quickest pace for nearly three years.

“Uncertainties linger over the direction of the economy and the outcome of the ongoing Brexit negotiations, which is weighing down consumer confidence.”