Heatwave failed to revive fortunes on the high street
HOUSEHOLDS’ spending has recorded its weakest annual growth since 2013 over the past three months as the recent heatwave failed to revive the high street’s fortunes, according to an index.
Overall consumer spending fell by 0.3% 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” – in which people pay to do something rather than buy 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% annually in June, marking the second month in a row where there has been a fall.
Online spending was up by annually 2.9% in June – a weaker increase than a 6.8% annual uplift recorded in May.
Overall, spending on transport and communication was down by 5.8% year on year in June, while spending on household goods fell by 3.4%, spending on recreation and culture fell by 1.2%, and spending on clothing and footwear decreased by 0.5% 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% annually, while spending on hotels, restaurants and bars increased by 4.9%.
Spending on health and education increased by 2.2% annually in June, while food and drink spending increased by 1.9%.
The index, compiled by Markit, uses spending on Visa cards as a base and adjusts the figures to take account of all spending, not just that on cards.
Kevin Jenkins, UK and Ireland managing director at Visa, said inflation is starting to affect shoppers’ habits, with people diverting their spending towards essentials.
He said: “Spend on food and drink grew by nearly 2%, while household goods suffered from a substantial drop as consumers cut back on big-ticket furniture and home wares.
“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.
“The recent heatwave and summer sales have failed to reverse the high street’s fortunes, with face-to-face spend falling for the second consecutive month.
“On the other hand, e-commerce spend continued to grow, albeit at a slower rate compared to May.”
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.
“Consumer confidence has also been dampened by uncertainties linked to the outcome of the ongoing Brexit negotiations, the inconclusive general election result, as well as relatively lacklustre growth across the UK economy.
“The downbeat data may add to calls for the Bank of England to keep interest rates lower for longer, as weaker consumer spending is likely to weigh on economic growth in the months ahead,” she added.