Consumer spending fell for the fourth consecutive month in December, rounding off the weakest annual performance for household expenditure since 2012, according to analysis based on debit and credit card payments.
Visa’s UK consumer spending index, which is compiled by data company IHS Markit, shows that households’ expenditure was 1 per cent lower, after adjusting for inflation, in December 2017 than in the same month a year earlier. The index is based on total spending on Visa credit, debit and prepaid cards, which account for £1 in every £3 spent in the UK.
Over 2017 as a whole, consumers spent 0.3 per cent less in real terms than they did in 2016, according to Visa – the first year-on-year decline in spending since 2012.
Squeeze
“Christmas rounded off another lean year for retailers,” said Mark Antipof, chief commercial officer at Visa. “Despite some large retailers signalling a strong Christmas performance, it is clear that the high street has suffered recently, while online spending has held up.”
Consumer spending was squeezed in 2017 by a sharp increase in inflation and sluggish wage growth, despite unemployment falling to a 42-year low. Inflation was high principally because the devaluation of sterling after the 2016 Brexit vote made imported goods more expensive and pushed up prices in the shops.
Spending on the high street was 2.7 per cent lower in real terms in December than in the same month a year earlier, while online spending was 2 per cent higher, according to Visa.
The latest data also suggest consumers are continuing to devote a growing share of their budgets to eating and drinking out, rather than buying physical items. Spending in hotels, bars and restaurants was 4.7 per cent higher in real terms in December 2017 than in the same month a year earlier.
Clothing
The new figures come after a week in which British retailers reported mixed experiences over the Christmas season. Debenhams continued to witness a decline in sales, as more consumers shopped online rather than in stores. But Next, the high street clothing retailer, reported strong sales growth. Clothing sales also performed well for John Lewis, but a decline in purchases of other products left their sales slightly down overall compared to December 2016.
Continuing changes in when and how people shop can make it difficult to assess overall spending levels on the basis of information on only a subset of expenditures.
The Visa index is based on all expenditure on Visa cards. But the figures are adjusted to strip out certain items, such as tax payments, and to take account of people’s growing preference for paying by card, rather than cash or cheque. The headline figures are also adjusted to take account of seasonal changes in spending patterns and differences in the number of trading days per month from year to year.
– Copyright The Financial Times Limited 2018
