Consumer spending continues to grow in Q4 but no major uplift
over Christmas period
Consumer spending growth continued in the final quarter
of 2010, albeit at a slower rate, from 6.9% in Q3 of 2010 to 2.6%
in Q4, according to Visa Europe’s UK Expenditure Index
Consumers continue to exercise caution on discretionary
spend
The Visa Europe: UK Expenditure Index indicates that consumer
spending grew 2.6% in the fourth quarter compared against the same
period in 2009. The growth rate has, however, slowed for the second
successive quarter, which was not helped by slow pre-Christmas
spending.
Consumer spending increased for the sixth quarter in a row, but
the rate of growth slowed, implying that household consumption made
a weaker positive contribution to UK economic performance in Q4
when compared against Q3.
Analysis of monthly data showed that growth weakened throughout
the quarter and was modest during the crucial pre-Christmas period,
a situation exacerbated by poor weather conditions. There was also
little evidence of any surge in spending ahead of this month’s VAT
rise.
For the year as a whole, according to the Index, consumer
spending in 2010 has now surpassed pre-recession levels but the
rate of growth is flattening out, indicating that consumer spending
is unlikely to play a major role in the further recovery of the
economy.
The latest findings indicate that consumers are being cautious
with their discretionary purchases. Spending on recreation &
culture for example fell in real terms for a second successive
quarter.
A number of categories saw spending growth rates above or close
to double digits. Consumer spending on clothing & footwear for
example was up 11.7% year-on-year while spending on household goods
rose by 8.8%, and hotels & restaurants saw growth of 6.9%.
Unlike other indices or surveys, Visa Europe’s UK Expenditure
Index is based on actual spend rather than sentiment or opinion,
and this data is then adjusted to allow for Visa card issuance,
consumer payment preferences and inflation. 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. 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.
The 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, a
specialist provider of business surveys and economic indices, has
developed the Index by creating a model which uses Visa transaction
data to approximate total consumer expenditure.
Dr Steve Perry, Commercial Director at Visa Europe
said:
“This is the sixth successive quarter where there has been an
increase in consumer spending even though the slowdown in growth
rates witnessed in Q3 has continued into Q4. The figures suggest
that we have avoided a double-dip recession, but if consumer
spending continues at the same rate of growth as in Q4, we can
conclude that consumer spending will play a less significant role
in driving UK economic growth.
“Over the quarter we saw spending weaken and the Christmas
period failed to deliver any significant impact on retail sales.
Retailers were clearly hampered by poor weather conditions in the
run up to Christmas but are very likely to be disappointed not to
have enjoyed a spike in big ticket items ahead of the VAT
increase.
“As we enter 2011 the issue emerging is
whether the caution exercised by the consumer on discretionary
items continues during the year.”
Paul Smith, Senior Economist at
Markit, said:
“Q4’s spending data from Visa highlight that
the UK consumer is set to play only a minor role in the economic
recovery, no surprise given the headwinds that households presently
face. Personal finances are being hit by rising inflation,
particularly for food and petrol. We expect this squeeze to
intensify in the near term as the VAT rise pushes the cost of
living higher and unemployment keeps a lid on nominal wage rises
resulting in real income cuts.
“Aware that a tough 2011 lies ahead,
consumers are subsequently exercising caution and generally
refraining from excess. This is highlighted by the broad category
data for Q4 which shows categories susceptible to discretionary
spend such as recreation & culture amongst the weakest
performers.”
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 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: Q4 UK Expenditure Index.
Notes to editors
About Visa Europe
In Europe, there are more than 400 million
Visa debit, credit and commercial cards. In the 12 months ending
June 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 http://www.visaeurope.com/