Spending stalls: people spent less for the third consecutive month in July

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It's the first time since 2013 there have been three months of spending falls (Source: Getty)

Rising prices and stagnant wage growth meant that spending across the UK dropped for the third month in a row in July.

It’s the first time since February 2013 that spending has fallen for three consecutive months, according to Visa’s Consumer Spending Index.

Source: Visa's UK Consumer Spending Index

People spent 0.8 per cent less this July than the same month last year, with transport and communication (down 6.1 per cent) and clothing and footwear (down 5.2 per cent) registering the sharpest falls.

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Annabel Fiddes, principal economist at IHS Markit, 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.

The Bank of England (BoE) last week kept interest rates on hold at historic lows of 0.25 per cent, with the Bank’s monetary policy committee voting six to two to leave rates unchanged.

There have been increased calls recently for BoE governor Mark Carney to begin raising rates due to concerns around run-away inflation in the wake of the pound’s fall after Brexit referendum and mounting consumer debt.

However, BoE chief economist, Andy Haldane, did not vote for a hike last week after previously saying he felt it was almost time for the Bank to make its first move in a decade.

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Pressure on the BoE to act was eased somewhat by a surprise inflation reading of 2.6 in June, down from 2.9 per cent in May. The Bank’s inflation target is two per cent and it said it expects inflation to peak at three percent in October.

Meanwhile, there were some bright spots from the Visa spending report.

Online spending rose by 3.6 percent from last year, while hotels, restaurants and bars reported a six percent increase.

“The [hospitality] sector is likely to have benefited from an early surge in summer staycations, as the weak pound made holidaying at home more attractive,” said Kevin Jenkins, UK and Ireland managing director at Visa.

“The drop in spending was felt across a broader range of retail sectors last month, with clothing, household goods, food and transport among the worst hit," Jenkins added. 

Source: Visa's UK Consumer Spending Index

What business leaders are saying

Visa tracks the sentiment of several small businesses across the UK on a monthly basis, asking about their views on the economy, business conditions and forecasts for the month ahead.

Josh Beer, The Illustrious Pub Company, Cambridgeshire

As expected, it’s been a quieter month for us, with sales down 3% on last year. We’re changing our business to accommodate the shift in consumer spending habits and anticipated a slight dip. We’ve noticed that people are either willing to treat themselves to quality meals or looking for a bargain, so our marketing now emphasizes our premium offering.

Tony Bailey, Top Notch Hair & Beauty, Manchester:

July was a brilliant month for us. Revenues were up significantly over last year, which really bucks the trend for what we’ve seen so far in 2017. We’ve benefitted from a healthy mix of both new and returning customers this month. This unexpected boost has been driven in part by the ‘unicorn effect’ as many of our customers have requested the pastel hair colours popular on social media.

Gayle Haddock, Carry me home (Children’s Clothes), London:

July isn’t usually a hectic month for us, and this year was no exception. During the summer holidays many parents have to reduce their working hours and increase their childcare costs, so there’s less time and money to make non-essential purchases. We’ve worked to counter this by releasing discount codes on social media.