Despite Brexit, Britain’s shoppers had been displaying admirable resilience over the past 12 months in the face of a fallen pound, uncertain markets and static wage growth, but now it looks as though conditions may be worsening irreversibly.
The latest figures from a survey compiled by IHS Markit on behalf of Visa reveal that the annual change in overall spending fell to -2.0% in October – in September it had fallen also, but only by 0.3% – and that the monthly percentage change in overall spending had declined 0.9%, having trended upwards by 1.4% in September.
This is the fifth time in the last six months that UK consumer spending has declined, but the rate of the decline in October is the steepest seen in more than 4 years, and it is the high street that is being hardest hit.
Face-to-face spending was recorded to have dropped by 5.0% year-on-year, whilst online spending has increased 2.2% over the same period – although this is in fact the weakest growth in the current six moth sequence of expansion.
The biggest drops in spending were recorded in the Clothing and Footwear sector; a decline of 9.0% year-on-year, Recreation and Culture (-2.9%), Food and Drink (-2.0%), Transport and Communication (-6.9%) and Household Goods (-3.8%).
The Miscellaneous Goods and Services sector, which includes jewellery, and hair and beauty, grew by 6.5%, whilst Hotels, Restaurants and Bars, and Health and Education grew modestly by 3.2% and 1.7% respectively.
The data is regarded as an accurate signpost of economic performance having successfully signalled a slowdown in GDP growth in the first half of the year. Currently, 2017 is on course to be the worst performing year since 2012.
Consumer spending down as a result of the ongoing squeeze on household budgets
Visa has suggested that increased pressure on household budgets is behind the slowdown; despite high unemployment, wage growth in the UK is almost non-existent and the recent interest rate hike – which many of the UK’s high street banks have indicated they will not be passing on to savers – is likely to leave families even worse off.
The consumer spending index looks at card transaction data across all Visa debit, credit and prepaid cards, which are used to make an average of 2.3 billion transaction every quarter, accounting for £1 of every £3 pounds spent in the UK.
Retailers pin their hopes on a surge in Christmas spending
Although the early signs are not good, retailers are hoping to see a spike in spending in the run up to Christmas; Visa’s Chief Commercial Officer Mark Antipof, commented in a statement that “Retailers will now be pinning their hopes on strong performance around Black Friday and Cyber Monday. November’s data will, therefore, provide the first real clue on how Christmas is shaping up.
Black Friday and Cyber Monday are two artificial spending “holidays”, where items are put on sale, often at outrageously low prices, particularly in the electronics, gaming and fashion sectors.
This year, however, the early indications are that another artificially created sales “holiday”, known as Singles Day, and used by Alibaba, the online Amazon rival to target the Chinese market generated $25.3 billion of sales – more than double Black Friday and Cyber Monday combined.
Can the more traditional run up to the Christmas holiday help drag the high street out of the mire? Or will retailer have to rethink their strategies, or simply wait, and hope for an upturn in the economy.
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Intriguingly, the data suggests that the high-end goods market; jewellery, beauty, etc. is holding out well – whereas the prices of everyday common-or-garden items are on the rise.
With that in mind, this could be a great year for middle income UK families to think about spending Christmas abroad – don’t forget to check out the latest overseas money transfer rates using our API driven comparison engine, and get in touch with one of our handpicked brokers to discuss the optimal time to pay for your seasonal trip!
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