Consumer spending loses momentum in March but continues to
grow
Q1 consumer spending increased 4.4% year on year
and 0.5% compared to Q4 2010, according to the Visa Europe UK
Expenditure Index
January spending bolstered the quarter's
growth
6 April 2011 - Consumer spending grew 4.4%
year-on-year in the first quarter (Q1) of 2011 according to
the UK Expenditure Index, produced by Visa
Europe and Markit. But growth was partly driven by temporary
factors that bolstered spending in January before momentum tailed
off over the rest of the quarter, particularly in March.
The picture painted by the Index is one of
low spending growth. However, on a seasonally adjusted basis,
spending in Q1 2011 was 0.5% higher than in Q4 2010. This is the
first time since Q2 2010 that a quarterly expansion has been
recorded but this in part reflects the weather related weakness in
December.
Positive growth in the first quarter was
particularly driven by the first two weeks of the year when daily
spending figures indicated that pent-up consumer demand was
released following December’s snow and shoppers tried to make the
most of the situation before the VAT increase. Year-on-year growth
was 8.5% in January but this fell to 3.2% in February and 1.8% in
March.
On a sector basis, those industries
associated with discretionary spending suffered most in Q1.
Recreation & Culture, which includes spending on entertainment
such as cinema, theatre and sports tickets as well as entertainment
related durables such as televisions, declined by -5.1%.
The value of average transactions was higher
than in Q4 2010 but fell on a year-on-year basis from £50.03 in Q1
2010 to £49.25 in Q1 2011. This was despite the recent surge in
inflation which saw consumer prices in February rising 4.4%, more
than double the official target.
Unlike other indices or surveys, the UK
Expenditure Index tracks actual spend rather than sentiment or
opinion. The Index is based on spending on all Visa debit,
credit and prepaid cards which are used to make an average of over
1.4 billion transactions every quarter and account for £1 in £4 of
all UK spending. This unrivalled data is then adjusted by Markit to
allow for Visa card issuance, consumer payment preferences and
inflation. This means the Index provides a uniquely comprehensive
and timely insight into the health of consumer spending in the UK
and enjoys a strong positive relationship with equivalent official
numbers.
Dr Steve Perry, Commercial Director
at Visa Europe said:
“The UK Expenditure Index shows that spending
growth was maintained in the first three months of 2011 but after a
strong start to the year the consumer began to run out of steam in
March. It is encouraging that we have now seen seven consecutive
quarters of growth but while the Index shows the Q1 growth rate was
higher than that seen in Q4 2010, it is still well below the levels
seen in Q2 2010. Looking forward we therefore expect consumer
spending to keep growing albeit at a low rate.
“It is clear from the sector data that
consumers are cutting back in some areas more than others. The
Recreation and Culture sector suffered most from this weak spending
growth. While we are spending more as a nation, households are
focused on essentials and seem to be cutting back on certain
discretionary items.”
Chris Williamson, Chief Economist at
Markit, said:
"The Visa Expenditure Index adds to a
growing body of evidence to suggest that the UK economy pulled
itself out of the relapse seen late last year. Compared to a year
earlier, growth of consumer spending is estimated to have improved
in the first quarter.
“However, much of this increase was
attributable to January's bounce-back in spending from the coldest
December for a century. Data for February and March, on the other
hand, suggest that a slower growth trend has again become apparent
as households fight the growing headwinds of falling real incomes,
which fell last year for the first time in thirty years,
deficit-reducing tax hikes and looming public sector spending
cuts.”
About the Visa Europe’s UK
Expenditure Index
Visa Europe’s UK Expenditure Index is based
on spending on all Visa debit, credit and prepaid cards. Markit has
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.
You can now read the full Visa Europe: Q1 2011 UK Expenditure Index
report.
About Visa Europe
In Europe, there are 427 million Visa debit,
credit and commercial cards. In the 12 months ending December 2010
those cards were used to make purchases and cash withdrawals to the
value of €1.6 trillion. 12.5% 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.