Britons splashing cash on dining out, leisure trips and culture treats, says survey, with online spending key driver

By Jonathon Hopkins for Thisismoney.co.uk

Published: 01:03 EST, 13 July 2015 | Updated: 04:01 EST, 13 July 2015

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Consumers are splashing cash on dining out, leisure trips and cultural treats as they make the most of their increased spending power, a survey said today, with official data due this week expected to show wages rising and inflation staying low.

Visa’s latest Expenditure Index showed that consumer spending remained buoyant in June, rising 1.4 per cent on an annual basis, rounding off the strongest quarter for household expenditure since the second quarter of 2010.

Online spending was a key driver of overall growth in June, jumping 6.6 per cent year-on-year to record the sharpest increase for 18 months, while face-to-face spending declined fractionally on the year, down 0.2 per cent.

Strong growth: Visa’s latest Expenditure Index showed that consumer spending remained buoyant in June, rounding off the strongest quarter for household expenditure since the second quarter of 2010

At the sector level, spending on Hotels, Restaurants and Bars continued to record a marked increase, up 6.9 per cent on the year, while Recreation & Culture categories registered the sharpest rise in spending volumes since the series began six years ago, rising 5.8 per cent.

Strong growth was also seen in Household Goods, where the rate of expansion reached an 11-month high, up 4.0 per cent, while Miscellaneous Goods & Services - which includes hairdressing and jewellery – rose 2.5 per cent.

But Clothing & Footwear retailers saw a further decline in expenditure, albeit only a slight one of 0.9 per cent, and Food & Drink categories recorded the second decline in spending in the past three months at 1.6 per cent.

Compiled by researchers Markit, the Index is distinct from Visa Europe’s business performance and reflects overall consumer spending, not just that on cards.

Kevin Jenkins, UK & Ireland managing director of Visa Europe said: ‘Based on their spending habits there looks to be a sustained feel-good factor among consumers at present.

‘April to June represents the strongest quarter for consumer spending since 2010 and indicates the trickle-down effect of low inflation and falling unemployment.

He added: ‘Prudent rather than excessive spending looks to be the order of the day, but people are definitely enjoying themselves’

‘June was also a story of two halves for the high street versus online. The latter was the key driver of growth registering its sharpest increase for 18 months, though for the former the proposal to relax Sunday trading laws offers a fresh chance for the high street to regain its mojo.’

What UK businesses are saying:

Visa is tracking the sentiment of several small businesses across the UK on a monthly basis, asking about their views on the economy, business conditions and forecasts for the month ahead:

Linda Anthony, Cotswold Celebration Company, South Gloucestershire: ‘June was a good month for us in terms of revenue growth. It was the start of the wedding season and we also benefited from additional sales from school proms.

‘Average spend on a party, having seen marked increase in the first half of the year, seems to have stabilised though. We’ve noticed that many customers are adopting a DIY approach for party decoration and are more likely to come to us for bigger tasks.’

Imogen Hawthorne, Paisley Immy Cakes, Birmingham: ‘We had another good month of steady growth. Many of our customers were going the extra mile for their special occasions and this has resulted in bigger orders for us. In addition, our shift in focus from local food markets to weddings has led to a significant improvement in the sales figures.’

Pauline Cusack, Glen Guest House, Birmingham: ‘Revenue is up 5 per cent in June over last year. Businesses in the area are doing really well, resulting in a steady stream of corporate guests for us. We’ve also seen more long standing bookings coming in which allows us to better plan for the future.’

Annabel Fiddes, economist at Markit said: ‘Looking ahead, stronger underlying economic factors, such as reviving wage growth and rising consumer confidence, are likely to underpin a further increase in household spending as we head into the second half of 2015.’

Both the latest official UK inflation and average earnings data will be released this week, reinforcing the improvement in consumer’s spending power

Consumer price inflation, due on Tuesday is forecasts to be stable in June at just 0.1 per cent in June, unchanged from the previous month thereby avoiding a renewed dip into deflation.

Inflation had edged up in May after consumer prices fell 0.1 per cent year-on-year in April which was the first deflation since 1960 according to comparable calculations by the Office for National Statistics. Consumer price inflation had previously been zero in both March and February.

Howard Archer, chief UK and European economist at IHS Global said: ‘Consumer price inflation is likely to hover just above zero through the summer and then start heading up decisively from around September.

‘This should be the consequence of base effects becoming less favorable, firmer oil prices overall, earnings growth picking up, and excess capacity in the economy diminishing.

‘Nevertheless, the rise in consumer price inflation should be relatively gradual and we see it only seen reaching 1.0 per cent by the end of 2015 and 1.9 per cent by the end of 2016.’

Meanwhile, underlying earnings growth, scheduled for Wednesday with the latest unemployment numbers, is expected to have improved further in May, extending a recent pick-up.

IHS forecasts underlying annual average earnings growth, which excludes bonus payments, to have climbed to 3.0 per cent in May, which would be the strongest increase since December 2008.

Web boost: Online spending was a key driver of overall growth in June, jumping 6.6 per cent year-on-year to record the sharpest increase for 18 months

Average wages grew 2.9 per cent in both April and March, up from 2.4 per cent in February, 1.6 per cent in January and a low of just 0.5 per cent in April 2014.

IHS’s Archer said: ‘With earnings growth likely to strengthen as 2015 progresses and consumer price inflation being extremely low (we see it averaging just 0.3 per cent over 2015), workers should see marked improvement in their purchasing power, which bodes well for consumer spending.’

IHS expects claimant count unemployment to have fallen by 10,000 in June to a record low of 781,800, while the unemployment rate is expected to have remained at 5.5 per cent in the three months to May.

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