Spending is down for first time in almost four years as rising cost of living hits family budgets
- Report says household spending dropped for the first time in almost four years
- Visa say household expenditure fell 0.8% in May, compared to 12 months earlier
- People on average spent 5.2% less on clothes and shoes for their wardrobes
- Total ‘face to face’ spending in shops fell 5.3 per cent, but online spending rose
Household spending has dropped for the first time in almost four years, according to a report published today.
Card company Visa said many families are ‘starting to feel the squeeze’ as the rising cost of living eats into their pay packets.
The firm said household expenditure fell 0.8 per cent in May, compared with 12 months earlier, as consumers tightened the purse strings and reined in impulse purchases.
A woman scans the supermarket shelves (file photo) as household spending has dropped for the first time in almost four years
This is the first fall in spending since May 2013, according to Visa’s latest Consumer Spending Index.
People spent less on sprucing up their wardrobe, with clothes and footwear down 5.2 per cent.
Spending on household goods also dropped 4.1 per cent.
Total ‘face to face’ spending in shops fell 5.3 per cent, although online spending rebounded from April, rising 6.9 per cent.
One shopkeeper quoted in the report suggested the rise in food prices may have caused many people to be more frugal, spending less money on pampering themselves.
Kevin Jenkins, UK and Ireland managing director at Visa said ‘bricks and mortar’ retailers have been the worst hit and said the figures were worrying because the warmer weather in May can usually relied on to drive people to the High Street.
He said: ‘Consumer spending fell for the first time in nearly four years in May, following some marked slowdowns in growth since the beginning of the year.
‘Our Index clearly shows that with rising prices and stalling wage growth, more of us are starting to feel the squeeze.’
He added: ‘Retailers of non-essential goods were among the worst hit, with clothing and household goods seeing sharp declines in sales.
‘The experience sectors continued to record some growth, though at much softer rates, suggesting consumers were reining in their discretionary spending.’
Although the economy has slowed in recent months, it has been buoyed by strong household spending.
Pedestrians walk passed a H&M store in London. People spent less on sprucing up their wardrobe, with clothes and footwear down 5.2 per cent
Predictions by pro-Brussels campaigners that households would cut back drastically after the Brexit votes were repeatedly confounded by official figures.
The evidence that households may now be becoming more cautious with their money comes as the Office for National Statistics prepares to publish the inflation figure for May on Tuesday.
Economists predict the Consumer Prices Index will remain at 2.7 per cent – the highest level since September 2013.
Wage figures published the following day are expected to confirm that pay also continues to rise more slowly than prices – meaning pay packets are being eroded in real terms for the first time since 2014.
A woman checks her wallet at a supermarket till (file photo)
The high April inflation figure was driven in part by one-off factors such as the rising cost of air fares because of the late timing of Easter and the introduction of higher Vehicle Excise Duty on new cars on April 1.
But experts say the rising cost of living more generally has been driven by the weak pound, which has pushed up the price of imports, and made goods such as clothes and food more expensive.
Some economists predict inflation could hit 3 per cent by the end of the year, prompting unions to warn of a ‘cost of living crisis’.
Bank of England governor Mark Carney has also warned households face a ‘challenging time’.
But he has said the squeeze should be short lived as the strong labour market pushes up wages and inflation eases.
Paul Hollingsworth, UK economist at Capital Economics – which predicts inflation will remain at 2.7 per cent in May - said: ‘Clearly the story for the remainder of the year is the intensifying squeeze on households and wages. But there is good reason for this pressure to decrease next year.’
Mr Hollingsworth said the hung parliament and the uncertainty created by a minority Conservative government is unlikely to change that.
He said: ‘Given consumers were not that bothered about Brexit and the hung parliament in 2010, there is good reason to think the election result will not weigh heavily on household spending.’
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