UK consumer spend dips in June, fashion sales fall

By

Sandra Halliday

Published
Jul 10, 2017

There’s a lot of contradictory data coming out of the UK at the moment but one thing is clear, while some stores are prospering, others are finding this spring and summer a struggle.

And the new Visa UK Consumer Spending Index released Monday underlines that latter point. Clothing spend fell during June and overall, the Index showed household spending growing by only 0.3% for the whole of Q2, the smallest rise since the third quarter of 2013.

And while many analysts and retailers have been talking about the “experience economy” as a way to reach consumers who are bored with buying more “stuff”, there are signs that this growth area is slowing too. Recreation and culture spending has fallen for the first time in almost four years.

Consumers are clearly starting to feel nervous about the implications of Brexit, the rise in inflation and  political uncertainty after last month’s general election. The slowdown that’s happening now is one that had been predicted to happen immediately after the Brexit vote. But as warnings a year ago that the sky might fall in turned out to be false, shoppers carried on spending, often fuelled by debt.

Now it appears that reality is hitting home and the figures for June highlight that. Spending at physical locations fell 2.4% during the month, the second drop in succession. But while online spending continued to rise, the 2.9% increase couldn’t make up for the physical stores dip. And besides, it was still well below the 6.8% increase that had been seen during May.

Spend on clothing was down 0.5% last month. OK, that’s a small dip. But clothing spend fell in May too, helping to wipe out the gains made in April. Spending on household goods also fell last month, by 3.4%, and recreation and culture spend was down 1.2%, despite June having seen some good weather when consumers might have been expected to go out and spend money. The recreation and culture category had previously risen every month since July 2013.

One bright spot though was spending on miscellaneous good, which includes hairdressing salon visits and jewellery purchases. It rose 5.7%.

The Index is compiled by IHS Markit and is seen as fairly accurate as it takes spending on Visa cards (with UK consumers increasingly using such cards for small transactions as well as large ones) and then adjusts the figures to account for all spend.

Visa’s Kevin Jenkins cited inflation as the biggest factor last month and last quarter with consumers diverting their discretionary cash to essentials. That was borne out by spending on food and drink rising 2% in June while the household goods figure dropped as shoppers cut back on expensive items like furniture and non-necessities like homewares. Furniture giant DFS appeared to support that view with its recent results showing a sharp drop-off of people investing in replacing their old sofas.

IHS Markit economist Annabel Fiddes 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.”