Household spending increases slightly for second month in a row

Visa’s UK Consumer Spending Index, compiled by IHS Markit, pointed to a further increase in household spending at the end of the third quarter. That said, the +0.2% annual increase was softer than the +0.4% rise seen in August.

Overall, household spending has risen in four of the past five months. Although this marked an improvement from earlier in the year, when expenditure was persistently falling, growth remains relatively lacklustre when compared to previous years.

Channel data showed that Face-to-Face spending continued to drive the overall increase in spend, rising by +1.1% compared to a year ago. This was stronger than the +0.2% increase in this category during August. In contrast, expenditure through eCommerce categories fell during September (-0.2%), albeit at a similarly marginal pace to that seen in the previous month (-0.3%).

Adolfo Laurenti, European Principal Economist, Visa, commented:

“Although UK consumer spending only rose marginally in September, this is the fourth month out of the past five when spending has increased. Furthermore, consumption appears to be reaccelerating after a rather lukewarm performance in the summer. While his trend isn’t anything to get carried away by, overall this is a positive development, considering the softness that prevailed earlier this year.

“The good news for high street retailers is that face-to-face spending held up better than eCommerce spending in September, a solid trend that has been in place since May and that is providing some breathing room to traditional outlets. Nevertheless, UK consumers remain circumspect: Christmas is on the horizon, but so is Brexit, so we wouldn’t expect to see any significant shift in spending gears over the next few months.”

Annabel Fiddes, Principal Economist at IHS Markit, said:

“Consumer spending rose for the second month running in September, according to the latest Visa CSI data. However, the pace of increase remained marginal with spend up by just +0.2% on the year, and continued to point to relatively subdued expenditure trends overall.

“While the heatwave and sporting events boosted spend over the summer, it seems unlikely that expenditure will improve much over the final quarter of 2018 unless a number of factors improve. Firstly, uncertainty over what kind of deal the UK can secure upon its exit from the EU is weighing on consumer confidence, which remains near a post-Brexit vote low. At the same time, living costs are increasing at a faster pace and wage growth is struggling to keep up, leading to only slight gains in pay in real terms.”

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