Festive spirit fuels consumer spending spree in run-up to Christmas

Consumer spending recorded its fastest growth for two years in the run-up to Christmas, as shoppers snapped up online bargains, visited festive markets and travelled to celebrations, according to an index.

Spending increased at an annual rate of 2.8% across the last three months of 2016, marking the strongest quarter since a 3.4% annual increase was recorded across the last three months of 2014, the Visa UK Consumer Spending Index found.

Overall, consumer spending in December 2016 increased by 2.6% annually, slightly down on a 3.1% annual increase in November, Visa said.

Online spending increased by 5.5% annually in December, while face-to-face spending in shops increased by 0.7% compared with a year earlier. In November, face-to-face spending had dipped by 1.5% annually.

Growth in spending in December was led by hotels, restaurants and bars, which recorded a 7.3% annual spending increase.

There was also a sharp increase in spending on recreation and culture, which saw a 6.4% annual increase.

Spending on food, beverages and tobacco increased by 2.9% annually in December, while spending on transport and communication increased by 1.2% annually.

But spending on clothing and footwear decreased by 1.1% in December compared with a year earlier, while spending on household goods also saw an annual fall, at 0.7%.

Kevin Jenkins, UK and Ireland managing director at Visa, said: "Consumer spending continued to increase solidly in the run-up to Christmas, rounding off the fastest growing quarter for two years.

"Average year-on-year growth for each month in quarter four 2016 was 2.8%, twice as high as the average rates for quarter two and quarter three.

"Online retailers enjoyed strong sales over the whole Christmas period, while bricks and mortar retailers saw an improvement, after a disappointing dip in November, as consumers made a last minute dash for gifts on the high street.

"Growth was once again led by the experience sector, with consumers going to Christmas markets, travelling to visit loved ones, or venturing to various parts of the country to celebrate.

"Food was, unsurprisingly, another sector which performed well, with spend up 2.9%. Spend on clothing and household goods, however, fell in December following a Black Friday boost in the previous month."

Compiled by IHS Markit, Visa's index is based on Visa card spending, which accounts for £1 in every £3 of all UK spending. The figures are then adjusted to reflect overall consumer spending, not just that on cards.

Annabel Fiddes, an economist at IHS Markit, said: "The UK economy remains in a strong overall position to support expenditure growth into 2017. However, rising inflationary pressures could squeeze spending power, and, along with Brexit-related uncertainty, this could soften the overall growth trajectory of household spending."

Bank of England figures last week showed that consumers ramped up their non-mortgage borrowing at the fastest rate in over 11 years in the run-up to Christmas.

The Bank recorded a £1.9 billion increase in consumer credit in November, the biggest increase seen since March 2005. The figures prompted warnings from experts that some borrowers who are managing their debts now may struggle amid expectations that consumers will face tougher economic conditions in 2017.