New Index suggests UK consumer expenditure is back to pre-recession levels

• Card expenditure growth hit 10.1% in second quarter of 2010 according to Visa Europe’s new UK Expenditure Index, produced in conjunction with Markit Economics
• But growth slows in June suggesting reports of falling consumer confidence may be starting to impact expenditure

8th July 2010 – Visa Europe’s UK Expenditure Index, launched today, indicates that card expenditure in the UK rose 10.1% in the second quarter (Q2) of 2010 compared to the same period a year earlier. The annual growth rate is now comparable to that seen prior to the recession and in absolute terms, real spending has now recovered to pre-recession levels.

Visa Europe’s UK Expenditure Index is based on spending on all debit, credit and prepaid cards issued by Visa which are used to make an average of over 1.4 billion transactions every quarter. Markit Economics, a specialist provider of business surveys and economic indices, have developed the Index by creating a model which uses Visa transaction data to approximate total consumer expenditure.

Unlike other indices or surveys, Visa Europe’s UK Expenditure Index is based on actual spend rather than sentiment or opinion. Over one in every four pounds spent in the UK is on a Visa card with more than 70% of that spending on debit cards. The Index has enjoyed a strong positive relationship with equivalent official numbers in recent years so provides a uniquely strong and timely insight into the health of consumer spending in the UK.

According to the Index, expenditure on the 91 million Visa debit, credit and prepaid cards in the UK rose to an estimated £82 billion in Q2 2010. This pushed the adjusted annual growth rate up to 10.1%, compared to 8.4% in Q1 2010, and was the fourth successive quarter of growth.

The latest rise in consumer expenditure in part reflects positive base effects following the severe declines seen around a year ago. Also, analysis of monthly trends suggests that expenditure grew at a slower pace in June than in May.

Dr Steve Perry, Commercial Director at Visa Europe said: “That total consumer expenditure has returned to pre-recession levels so quickly is very positive news for the economy. However, a slowing of the growth rate in June is a reminder that the consumer recovery is still fragile. Consumer sentiment has been hit by the political, financial and economic uncertainties that have arisen in recent months following the general election and the coalition government’s austere emergency budget. The uncertain outlook therefore means a slowdown in consumer expenditure growth cannot be ruled out.

“The past decade has seen a tremendous growth in the use of cards for all types of expenditure in the UK. Debit cards in particular are becoming the preferred payment method for many consumers and replacing the use of cash and cheques. This means that card spending provides an increasingly strong indicator of total consumer spending.

“As Visa technology processes millions of payments every day in the UK, we saw an opportunity to use this data to help provide an understanding of what consumer expenditure really looks like, which is why we have developed the Visa Europe: UK Expenditure Index.”

Paul Smith, Senior Economist at Markit Economics, said: "What makes these data particularly unique is the additional elements that it covers outside of retail such as spending at hotels, restaurants and transport hubs. Moreover, the data provide an indication of changes in ‘hard’ spend, rather than the sentiment and opinion that inevitably drifts into surveys of consumers.

“It is evident that the card spending data are substantially more volatile over time than official data relating to consumer spending (by a factor of over three), which means the data are particularly useful in signaling turning points. The latest data therefore suggest that household spending made an increasingly positive contribution to the economic recovery over the first half of the year, consistent with spend rising by 2-3% on a year ago in Q2. However, given proposed public spending cuts and higher taxes, Q2 may mark the peak of the recovery cycle – indeed the monthly data are already suggesting a loss of momentum towards the end of Q2 and there are risks that this trend will continue during the second half of 2010.”

About the Visa Europe’s UK Expenditure Index

Visa Europe’s UK Expenditure Index is based on spending on all cards issued by Visa – debit, credit and prepaid. Markit Economics have developed the Index by creating a model which adjusts the raw Visa transaction data for a number of factors.

First, the data are deflated by changes in the number of Visa cards issued to account for the expansion of Visa’s business. Secondly, an adjustment is made to offset changing consumer preference for card usage. This is based on an assessment of the trends in cash withdrawals and point-of-sale (POS) transactions on Visa cards. Finally, to account for inflation, the data are deflated by changes in the consumer price index to provide an indicator of real changes in household expenditure.

The Visa data have enjoyed a strong positive relationship with equivalent official numbers in recent years. The Visa data cover a much wider range of sectors than just retail as cards are increasingly used for payments such as utility and tax bills. This means Visa Europe’s UK Expenditure Index correlates most closely with the Office of National Statistics (ONS) Household Expenditure figures and, analysis of comparable Visa data for the past two years indicates that it can provide an advance indication of turning points.

For the full ‘Visa Europe: UK Expenditure Index’ please visit www.visaeurope.com/ukexpenditureindex

About Visa Europe

In Europe, there are over 399 million Visa debit, credit and commercial cards. In the 12 months ending March 2010 those cards were used to make purchases and cash withdrawals to the value of €1.4 trillion. 11.2% of consumer spending at point of sale in Europe is with a Visa card, and more than 70% of that is on Visa debit cards.

Visa Europe is owned and operated by more than 4,000 European member banks and was incorporated in July 2004. In October 2007, Visa Europe became independent of the new global Visa Inc., with an exclusive, irrevocable and perpetual licence in Europe. As a dedicated European payment system it is able to respond quickly to the specific market needs of European banks and their customers - cardholders and retailers - and to meet the European Commission’s objective to create a true internal market for payments.

Visa enjoys unsurpassed acceptance around the world. In addition, Visa/PLUS is one of the world’s largest global ATM networks, offering cash access in local currency in over 200 countries.

For more information, visit www.visaeurope.com

Contact details:
Visa Europe press office
Tel: +44 (0)20 7795 5336
E-mail: europeanmedia@visa.com