EconomyAug 7 2017

Consumer spending falls for third month in a row

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Consumer spending falls for third month in a row
ByDamian Fantato

Consumer spending as fallen for the third month in a row as stagnant wages and the growing cost of living continue to bite.

In July consumer spending, as measured by Visa’s UK Consumer Spending Index, fell by 0.8 per cent on an annual basis, following declines in May and June.

The biggest falls were in transport and communication – which saw a 6.1 per cent decline – and clothing and footwear – which saw a 5.2 per cent fall.

Overall, consumer spending fell in five of the eight categories in Visa’s index, with only recreation and culture as well as hotels, restaurants and bars seeing an increase.

Kevin Jenkins, UK and Ireland managing director at Visa, said this was the first time there had been a three-month consecutive fall in consumer spending since February 2013.

He said: “The figure provides further evidence that rising prices and stagnant wage growth are squeezing consumers’ pockets.

“There were still some bright spots in July, with hotels, restaurants and bars reporting a 6 per cent increase.

“The sector is likely to have benefited from an early surge in summer staycations, as the weak pound made holidaying at home more attractive.”

Inflation fell recently to 2.6 per cent but it still considerably higher than it has been in recent months.

CPI inflation was at 0.5 per cent as recently as June 2016 but has risen as the lower value of sterling since last year’s referendum filters through into higher prices.

Annabel Fiddes, principal economist at IHS Markit, said the latest figures showed total real pay falling at the quickest pace for nearly three years

She said: “Reduced spending comes at a time when 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.

“Alongside the renewed squeeze on household budgets, uncertainties linger over the direction of the economy and the outcome of the ongoing Brexit negotiations, which is weighing down consumer confidence.

“All this makes it seem unlikely that consumer spending will recover in the current challenging conditions, and adds to expectations that the Bank of England will not hike rates anytime soon.”