Rising prices hit growth in spending


Growth in households' spending has slowed to the weakest rate seen since the end of 2013 as rising prices take a stronger grip on people's finances, according to an index.

Spending increased by 0.9% annually across the first quarter of 2017, marking the weakest quarterly performance since the last three months of 2013, Visa's UK Consumer Spending Index found.

The annual growth in spending fell back to 1% in March, from a 1.3% annual increase in February.

Kevin Jenkins, UK and Ireland managing director at Visa, said: "Our data suggests that consumer spending is beginning to slow from the strong levels seen in late 2016, as rising prices increasingly squeeze household purchasing power.

"While overall spend continued to expand in March, the average growth rate for quarter one slowed down sharply to 0.9% from 2.7% in quarter four 2016. Quarter one was in fact the weakest quarter in terms of growth in the past three years."

Mr Jenkins said there were still "pockets of resilient growth" in March.

Spending on recreation and culture increased by 7.2% annually in March, while spending on hotels, restaurants and bars saw a 4% increase.

Consumer spending on miscellaneous goods and services, which includes health, beauty and jewellery, also saw a marked increase compared with a year ago, jumping by 6.9%.

Meanwhile, spending on traditional retail sectors saw a decline.

Food and drink spending was down by 0.4% annually in March, while spending on clothing and footwear and household goods both saw annual decreases of 0.2%.

Spending trends also differ depending on how people shop.

The report said online spending was up by 8.2% annually in March, while face-to-face spending on the high street was down by 1.3% annually. 

Mr Jenkins said this highlights the trend for "consumers increasingly favouring 'clicks' over bricks and mortar shops".

He said: "Benefiting from this trend, online retailers saw spend up 8.2% in March, marking the strongest monthly growth rate since Black Friday boosted November's figures.

"In contrast, milder weather and longer days did little to lift high street spend."

Annabel Fiddes, an economist at IHS Markit, which helps to compile the report, said: "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.

"Therefore the strong increases in expenditure we saw through most of 2016 are unlikely to be replicated this year.

"Furthermore, inflation is forecast to rise further from current levels, while consumer confidence remains lacklustre as households and businesses alike face a prolonged period of uncertainty around the ongoing Brexit negotiations."

Visa's index uses spending on Visa cards as a base, and adjusts the figures to reflect overall consumer spending, not just that on cards.