UK consumer spending reduces for the third month in a row

Visa, the payments provider, reported consumer spending in the UK fell for the third month in a row in July, marking the longest period of deterioration since the five-month sequence ending in February 2013.

According to the report compiled by IHS Markit on behalf of Visa, Consumer Spending Index (CSI) dropped to by 0.8 percent y-o-y, following a 0.2 percent y-o-y decline in June, signaling a further decline in household expenditure at the start of the third quarter.

Five of the eight broad spending categories recorded lower expenditure in July. The steepest reduction was seen in Transport & Communication (-6.1 percent y-o-y), followed by Clothing & Footwear categories (-5.2 percent y-o-y). Lower expenditure was also registered in Household Goods (-4.0 percent y-o-y) and Health & Education (-2.4 percent y-o-y) sectors. On the contrary, spending rose in Hotels, Restaurants & Bars categories (+6.0 percent y-o-y) and Recreation & Culture (+1.3 percent y-o-y).

Annabel Fiddes, Principal Economist at HIS Markit, said: "Reduced spending comes at a time when the UK economy has been expanding at a relatively modest pace, while households have been facing strong increases in living costs, and a slowdown in earnings growth. Notably, the latest ONS figures show total real pay falling at the quickest pace for nearly three years. Alongside the renewed squeeze on household budgets, uncertainties linger over the direction of the economy and the outcome of the ongoing Brexit negotiations, which is weighing down consumer confidence. All this makes it seem unlikely that consumer spending will recover in the current challenging conditions, and adds to expectations that the Bank of England will not hike rates anytime soon."