UK consumer spending at 3 month high ahead of Christmas trading

By Kevin Jenkins, Managing Director UK & Ireland • Visa

November 11, 2015

October’s consumer spending data is often awaited with anticipation. As the economy heads into the fourth quarter and retailers gear up for Christmas, October spending can give an early indication of the health of this crucial trading season.

Given recent global economic wobbles and hints that interest rates will remain at their current low for the foreseeable future, it can also provide a flavour of whether these economic factors are trickling down to consumer wallets.

In October this year, consumer spending grew at its fastest pace for three months, up 2.1% year-on-year. Our Expenditure Index, which is based on card spending and adjusted to give an accurate indication of consumer spending trends overall, shows that while spending was higher across a wide range of sectors, it was again leisure and hospitality that drove real growth. This discretionary spending was particularly strong in hotels, bars and restaurants, which recorded a 10% rise year-on-year. Likewise recreation and culture, registering a 5.3% year-on-year increase.

What drove this growth?

Several factors. Firstly, the aforementioned trickling down of economic factors. We can’t ignore the conditions that still prevail: employment has hit a fresh high, inflation remains mute, boosting spending power, and as noted above there’s little sign of interest rates rising for a while yet. More money in pockets, plus less prospect of expensive bills in the near term are combining with other factors like a still-low fuel price at the pumps and the ongoing price war among food retailers. Add them together and you see people able to spend more on things they enjoy, particularly going away, eating out, and entertaining.

Elsewhere, while e-commerce continues to grow strongly, bricks-and-mortar experienced a revival, up 1%. No doubt some warm autumnal weather and the school half-term break coinciding with Halloween brought more shoppers on to the high street.

So back to the original question – what does this say about prospects for the run-up to Christmas? Black Friday kicks things off on 27th November and we’ve already seen predictions for another record-breaking year, though not all retailers are on board. We’ll be releasing our own predictions in a few days’ time. Based on 2014, one of the most important factors to look for will be whether Black Friday adds value or strips it away from Christmas overall. The season definitely starts earlier than it used to, but whether that drives greater revenues or just sucks them forward will be a key story for the next 7 weeks.

Download the October 2015 UK Expenditure Index, or view previous reports on www.visaeurope.com.

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