Consumer spending returns to positive territory in August

Visa’s UK Consumer Spending Index, compiled by IHS Markit, signalled a +0.4% year-on-year increase in household spending during August. Though only slight, the rise contrasted with a -0.9% reduction in July.

Consumer spending has now increased in three of the past four months, though the latest upturn was softer than those seen in May (+0.9%) and June (+0.7%), and continued to signal relatively subdued expenditure trends in 2018 so far.

On a channel basis, expenditure increased +0.3% year-on-year across Face-to-Face categories, after a -1.2% fall in July. At the same time, spending across eCommerce channels fell slightly (-0.2%), albeit at a slightly weaker rate than that recorded in July (-0.5%).

Mark Antipof, Chief Commercial Officer at Visa, commented:

"In a welcome contrast to the prior month, August’s consumer spending was buoyed by face-to-face purchases with back-to-school spending amongst parents likely contributing to a glimmer of hope for our high streets. The prolonged good weather has seen sustained performance for hotels, restaurants and bars and food anddrink again topping the sector categories.

“Despite the increasing pressure on household budgets, bricks and mortar retailers will take encouragement that face-to-face spending rose at a faster rate than e-commerce. Since Visa’s Consumer Spending Index first launched, one of the overarching trends has been the dominance of e-commerce over face-to-face spending. This is certainly an area to watch as we move towards to big shopping events such as Halloween and Christmas.”

Annabel Fiddes, Principal Economist at IHS Markit, said:

“The latest Visa UK CSI data signalled a renewed increase in consumer spending on an annual basis in August. That said, the rate of growth was only slight and underscored the fragility of expenditure trends since early 2017.

“As the positive effects of the summer heatwave and summer sporting events have faded away, it seems unlikely that spending trends will improve much given the challenging conditions households face. Notably, wages are struggling to rise as quickly as living costs, while the recent rate hike by the Bank of England likely adds strain on households budgets. At the same time, consumer confidence remains stuck near its post-Brexit vote low, as concerns continue to mount over what kind of Brexit deal the UK can achieve when leaving the EU.”