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Summer surge boosts consumer spending

Visa

4 min read Partner content

The warm autumn weather saw a surge of spending in bars, hotels and restaurants, according to new consumer spending data.

Figures for October from the Visa Europe: UK Expenditure Index data indicated a solid year-on-year increase in consumer spending of 1.5% last month, with a 9.6% rise recorded in the hospitality sector.

This confirms that the UK spending recovery remains on track at the start of the final quarter, with expenditure set to have its strongest year of growth since 2010.

Conservative and Labour MPs welcomed the latest figures from Visa Europe.

Justin Tomlinson, co-chair of the All-Party Parliamentary Group on Retail and Tory MP for Swindon North, said the data shows that confidence continues to grow in the economy, and our retail sector is benefitting.

"Importantly for high street stores, face-to-face sales are enjoying a growth period with spending up 2.4% on the year – their biggest increase since 2010," he said.

"This is thanks in no small parts to businesses diversifying, improving customer service and benefitting from Government support including business rate freezes and National Insurance reductions for new employees."

Labour MP Adrian Bailey, who is a member of the BIS select committee, said the latest figures "underline the evidence that we are slowly emerging from the recession".

He added: "Particularly encouraging is the confidence index that may well underpin future spending decisions.

"However we must recognise that it has taken since 2010 to reach this level and with the economy expected to slow next year this could change."

Visa Europe’s UK Expenditure Index takes card spending data and adjusts it for a variety of factors to create a like-for-like comparison of consumer spending, providing a robust indicator of consumer spending habits.

"October has been a tale of two economies, each affected differently by the autumn sunshine," said Kevin Jenkins, Managing Director UK & Ireland at Visa Europe.

"Hoteliers, restaurateurs and leisure providers have all had a big boost as the weather and school half terms encouraged a wave of eating out, weekends away and leisure activities.

"On the flip side, clothing retailers again found the going tougher than hoped for. Consumer spending fell for the second month in a row, though the drop was less severe, suggesting shoppers are belatedly starting to stock up on winter clothing.

"With only two months of the year left and Christmas approaching, overall spending looks set to reach levels not seen in the UK since 2010. The recovery remains cautious, but certainly tangible."

Hotels, Bars & Restaurants were the strongest performers in October, with spending in this category rising by 9.6% on the year.

Spending volumes also rose solidly in the Food & Drink (4.4%) and Household Goods (2.7%) categories.

In contrast, expenditure at Clothing & Footwear retailers fell for the second straight month (-2.5%), but at a slower rate than in September (-6.4%). Sales of winter stocks were likely impacted by relatively mild temperatures in September and October.

Channel data indicated that an unseasonably warm October benefitted retailers on the high street, with Face-to-Face spending up 2.4% on the year. Meanwhile, Online expenditure declined in October (-1.5%).

Improved expenditure trends add to evidence that the UK economy holds strong growth momentum as we head into the final months of 2014.

Unemployment has fallen to a six-year low, while inflation is the lowest since 2009.

Paul Smith, Senior Economist at Markit, said:

"As expected, October’s Visa Expenditure Index showed a bounce following September’s slight reduction in consumption, with spending up 1.5% on an annual basis and putting 2014 firmly back on track to be the best year for growth since 2010.

"Moreover, the rate of growth in October would probably have been a little firmer if the clothing & footwear sector didn’t continue to suffer from sluggish sales due to unseasonably warm weather.

"Still, the underlying trend in spending growth has lost a touch of impetus since the summer. This is perhaps reflective of some uncertainty over the timing of interest rate hikes and a slower housing market."

Adrian Bailey MP commented:

"Increased employment is also welcome but with income increases still lagging behind inflation consumer spending could be vulnerable to a rise in interest rates. This could seriously undermine consumer confidence and economic growth and needs to be deferred until growth in the economy is robust."

The Visa Expenditure Index showed a further improvement in underlying household spending trends in October and, combined with other positive economic data, suggests that expenditure will support economic growth in the months ahead.

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