LONDON: Consumer spending in the UK contracted at the steepest rate for four years in the second quarter of 2017, according to a report published on Monday by Visa, the payments provider. Visa estimated that household spending was 0.3 per cent lower in the three months to June 30 compared to the same period in 2016, after taking inflation into account — the biggest year-on-year contraction since the third quarter of 2013. Meanwhile, a survey released by accounting firm Deloitte said business confidence has fallen following the June general election, in a finding that suggests the anticipated slowdown in consumer spending may not be offset by increased investment by companies.
The economy fared much better than many economists predicted after the vote to leave the EU last year, mainly because consumer spending held up. But with inflation rising partly because of the fall in sterling’s value after the Brexit vote, and employers resisting significant pay increases, household budgets are being squeezed. “It’s clear that inflation is beginning to affect shopping habits . . . with consumers diverting their spending to essentials,” said Kevin Jenkins, managing director for the UK and Ireland at Visa. He highlighted how household spending on recreation and culture dropped in June, the first such fall in almost four years. Consumers also cut back on big ticket furniture items last month. “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,” said Mr Jenkins.
The weak economic growth of 0.2 per cent in the first quarter — the worst performance by a G7 country — was blamed on rising prices and falling consumer spending. Visa’s figures add to a run of negative economic data that suggest that the economy has struggled to regain momentum in the second quarter. Annabel Fiddes, economist at IHS Markit, which produces the data with Visa, said: “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.” Meanwhile, optimism among chief financial officers has declined and concerns about the impact of Brexit have risen, according to the Deloitte survey of finance directors at 122 FTSE 350 companies conducted shortly after the election. The proportion of chief financial officers saying they are less optimistic about their companies’ prospects than they were three months ago has increased to 42 per cent, up from 17 per cent in the first quarter, the survey found.
