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| Spending falls at fastest rate for four years as consumers tighten belts | Spending falls at fastest rate for four years as consumers tighten belts |
| (7 months later) | |
| Household disposable income is squeezed by cost of living increase, prompting fall of 0.3% in spending in latest quarter | |
| Angela Monaghan | |
| Mon 10 Jul 2017 00.01 BST | |
| Last modified on Sat 2 Dec 2017 17.51 GMT | |
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| Household spending has fallen at the fastest rate in almost four years as rising prices have made consumers less willing to splash out on furniture, clothing and trips out. | Household spending has fallen at the fastest rate in almost four years as rising prices have made consumers less willing to splash out on furniture, clothing and trips out. |
| Spending fell by 0.3% between April and June compared with the same period a year earlier, the biggest drop since the third quarter of 2013, according to Visa’s consumer spending index. | Spending fell by 0.3% between April and June compared with the same period a year earlier, the biggest drop since the third quarter of 2013, according to Visa’s consumer spending index. |
| The report provides the latest evidence that cash-strapped consumers are more reluctant to spend money on non-essential items as prices in the shops rise at a faster pace than wages. Spending on household goods fell 3.4% in June compared with a year earlier, while recreation and culture spending dropped for the first time in four years, down 1.2%. Clothing and footwear spending was down 0.5%. | The report provides the latest evidence that cash-strapped consumers are more reluctant to spend money on non-essential items as prices in the shops rise at a faster pace than wages. Spending on household goods fell 3.4% in June compared with a year earlier, while recreation and culture spending dropped for the first time in four years, down 1.2%. Clothing and footwear spending was down 0.5%. |
| “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 Kevin Jenkins, UK and Ireland managing director at Visa. | “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 Kevin Jenkins, UK and Ireland managing director at Visa. |
| “It’s clear that inflation is beginning to affect shopping habits, 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.” | “It’s clear that inflation is beginning to affect shopping habits, 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.” |
| Official figures to be published on Wednesday are expected to show that wage growth including bonuses slowed to 1.8% year-on-year in the three months to May, from 2.1% in the three months to April. It would be the slowest rate of growth since the beginning of 2016, and would widen the gap between pay growth and inflation, which stands at 2.9%. | Official figures to be published on Wednesday are expected to show that wage growth including bonuses slowed to 1.8% year-on-year in the three months to May, from 2.1% in the three months to April. It would be the slowest rate of growth since the beginning of 2016, and would widen the gap between pay growth and inflation, which stands at 2.9%. |
| Victoria Clarke, economist at Investec, said there was little sign of a pickup in wage growth in the coming months, intensifying the squeeze on household finances. She said that the weak outlook for pay was likely to discourage the Bank of England from raising interest rates for the time being. | Victoria Clarke, economist at Investec, said there was little sign of a pickup in wage growth in the coming months, intensifying the squeeze on household finances. She said that the weak outlook for pay was likely to discourage the Bank of England from raising interest rates for the time being. |
| “The lack of upward momentum in pay growth, in several economies including the UK and US, has been a central talking point of late as policymakers debate the cause of this and what this implies for the stance of monetary policy,” she said. “In the UK context, we suspect the lack of pay growth will help the MPC [monetary policy committee] delay any normalisation until Brexit uncertainties facing the UK economy have died down.” | “The lack of upward momentum in pay growth, in several economies including the UK and US, has been a central talking point of late as policymakers debate the cause of this and what this implies for the stance of monetary policy,” she said. “In the UK context, we suspect the lack of pay growth will help the MPC [monetary policy committee] delay any normalisation until Brexit uncertainties facing the UK economy have died down.” |
| The Visa report is the latest sign that consumers are growing more reluctant to commit to big spending decisions. New car sales in the UK fell for a third month in June, according to the Society of Motor Manufacturers and Traders, ending five years of solid growth. | The Visa report is the latest sign that consumers are growing more reluctant to commit to big spending decisions. New car sales in the UK fell for a third month in June, according to the Society of Motor Manufacturers and Traders, ending five years of solid growth. |
| There are also signs that housing market demand is cooling, with Halifax reporting a 1% drop in average prices in June, to £218,390. | There are also signs that housing market demand is cooling, with Halifax reporting a 1% drop in average prices in June, to £218,390. |
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| Inflation | |
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| Consumer affairs | |
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