Retailers feel the heat as consumers tighten belts
CONSUMERS are reining in their spending at the start of 2017 as the January sales failed to stop outlay on clothing falling at the fastest pace in nearly five years, according to an index.
Face-to-face spending on the high street recorded an annual fall of 3.1 per cent in January – the strongest decline seen in four years – Visa’s UK Consumer Spending Index found.
Meanwhile, online spending increased by 4.1 per cent year-on-year, marking the slowest growth seen in five months.
Overall, spending was up by 0.4 per cent in January compared with a year earlier, following a 2.5 per cent year-on-year increase in December.
Spending on clothing and footwear fell at the fastest pace seen since April 2012, with a 3.8 per cent annual decline recorded in this category.
Food and drink spending was unchanged year-on-year, with 0 per cent growth, while spending on household goods fell by 2.7 per cent annually.
Growth in spending continued to be led by hotels, restaurants and bars, which saw a 5.7 per cent year-on-year increase in spending, and recreation and culture, which recorded a 3.1 per cent annual spending increase.
Kevin Jenkins, UK and Ireland managing director at Visa, said: “Following a bumper Christmas season, there were signs that consumers were starting to rein in their spending at the start of the new year.
“Annual growth slowed down from 2.5 per cent in December to a five- month low of 0.4 per cent in January, as households monitored rising prices on everyday items and how this would impact disposable incomes.
“Clothing and household goods retailers experienced a particularly difficult January.
“The traditional start-of-year sales did little to lift clothing spend, which saw the biggest drop in nearly five years.
“The high street as a whole suffered a disappointing month, too, with spend falling at the quickest rate in four years.”
The index uses spending on Visa cards as a base and the figures are adjusted to reflect overall spending, not just that on cards.
Annabel Fiddes, an economist at IHS Markit, which compiles the index, said: “Broken down by sector, weakness appeared to predominantly lie within the traditional retail sectors such as clothing and footwear, food and drink and household goods, while spending in other areas such as hotels, restaurants and bars continued to rise.
Ms Fiddes said growing pressures from inflation will be a “key threat” to consumer spending in the coming months.
She continued: “As a result, households’ purchasing power will be squeezed further which, combined with relatively muted consumer confidence, may lead expenditure to settle on a slower growth trajectory in 2017.”