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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.

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.