June 11, 2017 / 11:15 PM / 6 months ago

UK consumer spending falls for first time in nearly four years - Visa

LONDON (Reuters) - British consumers cut their spending for the first time in nearly four years last month, figures from credit card firm Visa showed, as households turned more cautious even before last week’s shock election result.

People's shadows are seen as shoppers are silhouetted in the bright sunshine at the Westfield shopping centre, Stratford, London January, 28, 2017. REUTERS/Russell Boyce

Consumer spending in May was 0.8 percent lower than in the same month in 2016 after adjusting for inflation, the first year-on-year fall since September 2013, Visa said on Monday.

Sales fell by a hefty 1.9 percent in monthly terms.

“Our index clearly shows that with rising prices and stalling wage growth, more of us are starting to feel the squeeze,” Visa managing director Kevin Jenkins said.

Britain’s economy has shown signs that it is stagnating and confidence among businesses and consumers it expected to take a further hit after Prime Minister Theresa May failed to win a parliamentary majority in last week’s election.

She now plans to lead a minority government with support from Northern Ireland’s main unionist party, raising questions about how Britain will progress in Brexit talks and whether another election might be called soon.

After shrugging off the initial impact of last year’s vote to leave the European Union, the effects of sterling’s more than 10 percent fall is catching up with Britons in the form of higher inflation, which is its strongest since September 2013.

Sterling weakened again after last week’s inconclusive election result and businesses have said the election result risks paralysing the government at a time when it is meant to be negotiating a smooth exit from the European Union.

Retail sales in the first three months of 2017 suffered their biggest fall since 2010. Data published on Friday showed industrial output and construction faltered again in April.

Britain’s overall economy was the weakest performer among the Group of Seven rich nations in the first quarter of 2017.

Visa said bricks-and-mortar retailers suffered their biggest fall in sales in five years, which was only partly offset by strong growth in online sales. Growth in spending at hotels and restaurants - which has risen much faster than at retailers in recent quarters - slowed to an annual 3.3 percent.

Spending on transport and clothing were the categories with the biggest falls.

“The outlook for consumer spending continues to look relatively bleak, with households facing faster increases in living costs and muted wage growth,” said Annabel Fiddes, an economist at IHS Markit, which compiled the data for Visa.

“The squeeze on household finances is likely to get worse as the Bank of England forecasts faster increases in consumer prices in the coming months,” she added.

The Visa figures strip out seasonal and inflation effects, and are adjusted to take account of the growing share of spending on cards rather than cash.

Reporting by David Milliken; Editing by William Schomberg

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