UK consumer spending weakens to near four year low

Spending by UK households has fallen for the second month in a row to its lowest quarterly level for three and a half years.

June saw a 0.3% decline in household expenditure, according to Visa's monthly consumer spending index.

This was a slight improvement on the 0.9% decrease in May but draghed average spending for the second quarter to a 0.3% year-on-year fall, the lowest since the second half of 2013.

Half of spending categories endured lower expenditure in June, led by a 5.8% decline for transport & communication, a 3.4% fall for household goods, a first monthly drop for recreation & culture in four years and and a much smaller dip for clothing & footwear than than the previous month's five-year plunge.

Sectors to enjoy June more than last year included a 5.7% jump for miscellaneous goods & services, which includes hairdressers and jewellery, a 4.9% rise for hotels, restaurants & bars; health & education up 2.2% and food, beverages & tobacco 1.9%.

E-commerce spend continued to grow, rising 2.9%, albeit at a slower rate compared to May.

“June data provides further evidence that an increase in the cost of living, coupled with slowing wage growth, are beginning to squeeze household disposable income," said Visa's UK & Ireland managing director Kevin Jenkins.

He said it was clear that inflation is beginning to affect shopping habits too, with consumers diverting their spending to essentials.

"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 homewares. 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.”

Economist Annabel Fiddes at IHS Markit, who conducted the survey, 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.”