Pressures from rising prices and political uncertainty see drop in spending across clothing, household goods, food and transport

This article is more than 3 years old

This article is more than 3 years old

Squeezed British households have cut back their spending for the first time in almost four years, according to figures that underscore the pressures from rising prices and political uncertainty.

Visa, the credit and debit card processing business, said its vast database of spending patterns shows there was a drop in spending across a broad range of categories last month, including clothing, household goods, food and transport.

That chimes with recent signs the UK economy is struggling to eke out growth this year and has fallen behind its peers as the effects of last summer’s Brexit vote start to bite.



Economists are worried that the inconclusive result of last week’s snap general election will add to the mood of uncertainty among consumers and businesses alike. That will compound the pressures from the pound’s sharp drop since the EU referendum, which has pushed up the cost of UK imports and stoked inflation.

Official figures due this week are widely expected to confirm that workers suffered another drop in real pay in April as wage growth weakened further and failed to match rises in living costs. Separate figures for May are forecast to show inflation held at 2.7%, the highest for more than three years and well above a Bank of England target of 2%.

Despite that overshoot, the Bank’s policymakers meeting to set interest rates this week are likely to reaffirm that they are happy to tolerate higher inflation for now as they continue to keep borrowing costs low to shore up growth and employment.

The monetary policy committee will be one member short again this month after the resignation earlier this year of the Bank’s deputy governor, Charlotte Hogg, when it emerged she had breached the Bank’s code of conduct.

Economists polled by Reuters expect the depleted committee to vote seven to one to leave interest rates at the record low of 0.25%. Only Kristin Forbes, who leaves the MPC this month, is expected to continue voting for a rate rise to curb inflation. Her colleagues will likely emphasise the pressures on consumer spending.

The figures from Visa appear to vindicate their cautious approach. The payments company said spending dropped 0.8% year-on-year in May, the first decline since September 2013.



“Our index clearly shows that with rising prices and stalling wage growth, more of us are starting to feel the squeeze,” said Kevin Jenkins, UK & Ireland managing director at Visa.

“Retailers of non-essential goods were among the worst hit, with clothing and household goods seeing sharp declines in sales.”

Spending on experiences such as eating out and cinema trips continued to rise, but at a softer pace in May, according to the Visa report, compiled by data company IHS Markit.

There was further evidence of consumer caution in shopper numbers for May. They showed a 1% drop in footfall, which measures people going into shops but not necessarily buying anything.

It was the first such drop since February, driven by a 2% fall in high street footfall and a 1.3% decline at shopping centres. Retail parks defied the broader trend, with a 1.5% rise, according to the figures from the British Retail Consortium and retail analysts Springboard.

“May was clearly a month of moderation for UK shoppers,” said Springboard’s Diane Wehrle.

She also noted signs in the footfall data – collected from electronic sensors around the country – that fewer people were staying on past 5pm to eat out after shopping trips, a further indication households had become more cautious.

Economists expect that the pressure on household finances will translate into a drop in retail sales volumes in official figures due to be released on Thursday. A Reuters poll points to a 0.8% drop in sales in May after a 2.3% jump in April when Easter holidays and warm weather appeared to buoy trade.

Beyond the retail sector there have been signs of a slowdown in other parts of the economy, with official figures last week showing output in the manufacturing and construction sectors missed expectations on the latest measures.

A survey from Lloyds bank on Monday will add to the mood of caution. It suggested most regions in England suffered a slowdown across manufacturing and services firms in May.

Business activity in England continued to grow, but the rate of expansion fell to a three-month low, according to the Lloyds regional purchasing managers’ index (PMI). Wales, by contrast, enjoyed a pick-up in business activity growth.

Gareth Oakley at Lloyds Banking Group highlighted that the survey’s price measures had come down from recent highs, easing some of the pressure on businesses.

“Although there were some signs that political uncertainty and a squeeze on household budgets from rising prices had dampened growth rates, businesses across England and Wales reported further increases in both output and new orders in May,” he added.