Britain’s consumers are buying fewer products and spending less time shopping on the High Street leading to subdued consumer spending.
At least that’s the picture painted by three separate reports published just a day before the Chancellor’s Spring Statement. In its latest consumer spending index report, credit and debit card company Visa says the first two months of 2018 have marked the weakest start to the year since 2012. Meanwhile, retail analyst Springboard says that footfall – the number of people choosing to visit shops – declined in February and car manufacturers are reporting lower sales.
According to Visa consumer spending declined by 1.1% in February compared to same month a year earlier. But the devil is in the detail. Spending on hotels, restaurants and bars continued to grow in February, perhaps an indication that cash-strapped Britons were prioritising measures to blow away the winter blues. But face-to-face transactions fell by a hefty 2.5%. This was only modestly offset by e-commerce sales. In an ideal world, those who opted to stay at home rather than venturing down to the shops would have bought online instead. In fact, online transactions rose by just 0.2%.
But the biggest hit was taken by companies operating in the recreation and culture sector, which saw a drop in takings of 6.1%.
More Belt-Tightening Ahead
There may be more belt-tightening to come, with Visa predicting further consumer retrenchment in March. “As we look ahead into March, consumer spending is at risk of posting one of the worst Q1 results on record,” said Mark Antipof, the chief commercial officer at Visa.
Springboard’s report was rather marginally more optimistic about the immediate future for the retail sector. Although footfall fell by 0.5% year-on-year in February feeding through to a three-month decline of 2.0%, the retail analyst said the storm clouds over the High Street may be lifting, at least a little.
“The -0.5% drop in footfall in February was less than a third of that recorded in January and lower than the 12 month average of -0.7%, providing some good news in the face of trading challenges,”
said Diane Wehrie, Springboard marketing and Insights Director.
Elsewhere there were signs that the public appetite for bigger ticket items was also subdued. According to the Society For Motor Manufacturers and Traders, new car sales fell 2.8% in February and there were fewer finance deals.
A Difficult February
UK retailers undoubtedly experienced a challenging month. February 2018 ended with a deep cold snap. Even in those areas that were not badly affected by snow, consumers shivered in sub-zero temperatures, making them less likely to venture out to the High Street on a whim.
“February’s cold snap certainly didn’t alleviate this situation,” said Antipof. “Particularly when we shine a spotlight on high street spending, and recreation and culture, which saw its biggest decline since April 2010.”
The Economic Backdrop
But there were undoubtedly other factors at work, not least the economic backdrop. As Annabel Fildes, principal analyst at analytics company IHS Markit pointed out when she commented on the Visa figures:
“Rising living costs, lacklustre wage growth and relatively subdued consumer confidence are all likely playing a part in the ongoing reduction in household spending. Unless the squeeze on incomes subsides, it looks unlikely that household spending will pick up anytime soon.”
The Road Up Ahead
And that is undoubtedly the big question facing retailers. Economic activity over the past eighteen months or so has taken place in the shadow of 2016’s Brexit vote. And although the referendum decision to leave the European Union did not result – as some predicted – in a sharp downturn in the economy, a sustained fall in sterling has pushed up the price of imported goods, fuelling inflation in the process. That has been coupled with caps on public sector wages and below-inflation salary increases in the private sector. Inevitably all this has had a dampening effect on the willingness of consumers to spend.
But will it continue? The British Retail Association, commenting on the Springboard figures expressed guarded optimism.
“There’s some hope that shopper activity will pick-up now that inflationary pressure has started to subside and wage growth is expected to move in the right direction. But this will offer only modest relief to retailers” said British Retail Association Chief Executive Helen Dickinson.
Rate Rises on the Way
But the outlook remains uncertain. A report published last week by economic forecaster, EY Item Club warned that economic pressures will weigh heavily on consumers’ willingness to spend throughout 2017.
According to the Forecast, consumer spending will grow – that’s the good news – but only by 1.3%, well below inflation. If that prediction proves to be correct, it will mark a further slowdown from 2017’s figure of 1.4%, which itself marked a six-year low. Compare and contrast with 2016 when spending rose by 2.9%.
As EY Item club does see some relief for hard-pressed consumers in the coming months, with inflation set to fall – but this is likely to be offset by rising interest rates. The Item club predicts the Bank of England will raise rates twice during the year ahead, raising the burden on consumers who have card, loan and mortgage debts.
And according to Chas Roy-Chowdhury, Head of Tax at the Association Chartered and Certified Accountants, this week’s Spring Statement missed a chance to take the pressure off consumers.
“The climate of uncertainty requires some bold economic policy. It was disappointing that Philip Hammond missed the opportunity to bring forward increases in the personal allowance and basic rate band, to pass on savings to stretched taxpayers,” he said.
So Britain’s retailers face some difficult months. The UK economy is not on its uppers but is performing less well than those of the major Eurozone countries and the US and this, in turn, is feeding through to consumer spending. Most retailers are more than capable of riding out the storm but for those already struggling with issues such as high indebtedness, falling customer numbers and/or high business, rates these could be dangerous times. Witness the demise of Toys R Us and Maplin.