UK Consumer Spending Tumbles as Shoppers Curb Expenses

UK consumer spending continued to decline in April, despite accelerated wage growth, as British consumers remained cautious with their expenses, further suggesting that the country’s economy struggled to recover from a weak first quarter.     

Analysis from payment processing firm Visa Inc. showed on Monday that inflation-adjusted expenditure on its credit and debit cards fell by 2 percent last month, compared to the same month in the prior year.

In-store spending dropped to its fastest rate for six years of 5.4 percent year on year in April, while online expenditure slipped 0.1 percent.

Figures indicated that the UK’s spending could be set for its worst annual performance since 2012. It also proves the structural change in the retail industry, from in-store sales to online shopping, and from spending on things to expenses on leisure.

On a seasonally adjusted basis, spending has lost 1.6 percent in the three months to April, compared to the past three months. Spending was down by 1.3 percent in March, as the so-called, Beast from the East snowstorm hit sales.      

Many were expecting that sales would improve after the Beast from the East that confined buyers inside their homes in February and March had ended.

Consumers Still Tightening Belts on Spending

Visa Chief Commercial Officer Mark Antipof said it would have been easy to assume that they may be done with worst of the consumer squeeze, since inflation has started to ease and wage growth has picked up the pace, but it was apparent that consumers were still in belt-tightening mode.  

Low consumer confidence and a downbeat forecast for the UK economy were the likely factors for the continued caution, according to Antipof.

A weather-blighted first quarter results presented last week showed that economic expansion has slowed by 0.1 percent, highlighting weaker consumer spending and softer housing market as possible causes for further sluggishness.       

Household spending performance, a driver of the UK’s economy, will be vital in finding out how fast the economy would be able to recover from the opening months of the year, when growth nearly became idle.

The Bank of England (BOE) said last week stronger wage growth and easing inflation should start to help raise household spending, following a two-year squeeze on real incomes.

However, it also suggested that some shoppers might choose start saving again, rather than spend more freely, especially if they were uncertain about the economic outlook or their own situation.

Weaker inflation is also not much having an impact on corporate incomes, as they were still hardly improving, offering only minor relief to pressured British retail companies, such as Kingfisher Plc and Debenhams Plc.

Antipof stated that shoppers will be putting their hopes on further gains in household finances and warmer climate, resulting to a more optimistic few months heading into summer.    

The hot weather might also help bolster profits in the retail sector this May. British clothing group Next Plc last week updated its full-year profits forecast by £12 million ($16.2 million) or 2.2 percent from £705 million to £717 million.

The sunny weather may have represented 2 to 3 percentage points of the 6 percent boost in Next’s sales in the 14 weeks to May 7.

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