Christmas provided little relief for the UK’s battered retailers, with weak consumer spending failing to pick up in the festive season, according to an analysis of credit and debit card payments by Visa, the payment processing company.
The company’s consumer price index showed that household expenditure contracted in December at its fastest pace since April as uncertainty increased about the Brexit process.
The index, which is compiled by data company IHS Markit, showed that overall consumer spending dropped at an annual rate of 1 per cent in December, after contracting by 0.7 per cent in November and by 0.2 per cent in October.
The data confirmed figures published last week by KPMG and the British Retail Consortium showing a disappointing Christmas shopping period. It came ahead of official retail sales figures, which will be released on Friday. Markets expect a contraction of 0.8 per cent in December over the previous month.
“December’s CSI data show a disappointing end to 2018, with household spending failing to pick up in the run-up to Christmas,” said Annabel Fiddes, principal economist at IHS Markit.
Consumer spending remained weak at the end of the year despite a strong labour market and a pick-up in wages. August to October employment rates in the UK were the highest on record, and regular pay over the same period increased by a nominal annual rate of 3.3 per cent, the highest since 2008.
Yet households remained cautious. “The sustained fall in expenditure throughout the fourth quarter of 2018 coincides with a marked drop in consumer confidence, as uncertainty around the UK’s impending exit from the EU continues to dampen sentiment,” said Ms Fiddes.
The closely watched GfK UK consumer confidence index dropped to its lowest level since 2013 in December, amid predictions of weak economic growth over the coming year.
The drop in consumer confidence sets the UK apart from European economies; the European Commission consumer confidence tracker shows that Germans and consumers in the eurozone are more optimistic than the UK peers.
The lower consumer spending was largely driven by a disappointing performance on the high street as face-to-face spending fell by an annual rate of 1.6 per cent in December.
E-sales continued to grow at a subdued rate of 0.5 per cent. The modest increase points to “the resilience of digital channels of distribution, a favourable long-term trend that recent woes have not derailed”, said Adolfo Laurenti, economist at Visa.
The weak consumer spending data added to concerns about the pace of UK economic growth in the final quarter of the year. “Alongside relatively weak UK PMI survey data, which signalled muted business activity in December, the spend figures add to evidence that the UK economy is likely to have slowed in the final quarter of 2018.”