UK consumer spending slows say Visa, fashion spend lags

By

Sandra Halliday

Published
Apr 10, 2017

The post-Brexit vote slowdown had to come at some point and it looks to have started. While some data is showing retail footfall strengthening, new figures from payment cards giant Visa are also showing consumers putting the brakes on their discretionary spending.

Inflation is being blamed and it looks like the fashion sector could lose out badly as consumers adjust the order of items other priority lists.

In Q1, spending (with sales tax stripped out) rose only 0.9% year-on-year. In Q4 last year, it had risen 2.7% with the Christmas shopping season increasingly looking like a last hurrah for ever-more-cautious UK shoppers.

Spending had managed to stay flat in February but it dropped by 0.7% in March, although we will have to wait until April’s figure are through to see whether that was due to the timing of Easter being later this year.

Compiled by researchers at IHS Markit for Visa, this data only accounts for around a third of consumer spending. But being based on transactions using Visa’s credit and debit cards, it is increasingly important. With the UK moving towards being a cashless society, card spending is becoming an ever-more-relevant reflection of how British consumers allocate their disposable income as each year passes.

THE BIG PICTURE

The January to March figure is the weakest growth since Q4 2013 with Visa blaming rising inflation. But is this the full picture?

Looking at March alone, while spending on fashion trailed, the leisure sector expanded, seeing a 7.2% increase in consumer spending. So while it looks like the UK economy is starting to slow, some parts of of it are slowing fast while others are still seeing good growth and fashion could be the loser from this.

"Relatively modest increases in expenditure through the opening quarter adds to the picture of a slowing UK economy, as highlighted by recent business surveys, while rising inflationary pressures have eaten away at consumers' spending power," said Annabel Fiddes, economist at IHS Markit. "The strong increases in expenditure we saw through most of 2016 are unlikely to be replicated this year.”

Just how much of an impact inflation might have this year will become clearer on Tuesday when official inflation data for March is released. Analysts are expecting a 2.3% rise. But recent data shows that clothing prices are still suffering from deflation, putting both large and small retailers under unprecedented pressure.