GROWTH in household spending has slowed to the weakest rate seen since the end of 2013 as rising prices take a stronger grip on people’s finances.
According to Visa’s UK Consumer Spending Index, spending increased by 0.9 per cent annually across the first quarter of 2017, the weakest quarterly performance since the last three months of 2013.
Annual growth in spending fell back to one per cent in March, after a 1.3 per cent annual increase in February.
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Kevin Jenkins, UK and Ireland managing director at Visa, said: “Our data suggests consumer spending is beginning to slow from the strong levels seen in late 2016, as rising prices squeeze household purchasing power.
“While overall spend continued to expand in March, the average growth rate for quarter one slowed down sharply, to 0.9 per cent from 2.7 per cent in quarter four 2016.”
Jenkins said there were still “pockets of resilient growth” in March. Spending on recreation and culture increased by 7.2 per cent annually in March, and spending on hotels, restaurants and bars rose by four per cent.
Consumer spending on miscellaneous goods and services, which includes health, beauty and jewellery, jumped by 6.9 per cent.
Food and drink spending was down by 0.4 per, while spending on clothing and footwear, and on household goods, both fell by 0.2 per cent.
Online spending rose by 8.2 per cent while face-to-face spending on the high street was down by 1.3 per cent.
Meanwhile, abother report says rising exports will help prop up the UK economy as soaring inflation hits consumer spending.
Growing overseas demand for British goods made cheaper by the Brexit-hit pound will help smooth the impact on gross domestic product (GDP) from a slowdown in household spending, according to EY ITEM Club.
The influential think tank has revised up its outlook for GDP from 1.3 per cent to 1.8 per cent for 2017, from one per cent to 1.2 per cent in 2018 and from 1.4 per cent to 1.5 per cent in 2019.
Peter Spencer, the organisation’s chief economic adviser, said growth in world trade will also help soften the blow from lacklustre consumer demand. He said: “The UK economy has been adjusting to life outside the EU since the referendum.
“Recent data suggest the pound’s depreciation has boosted manufacturing, while inflation has subdued retail sales growth. At the same time, unlike 2008 when the pound last had a big fall, we are now selling into buoyant markets.
“Growth in world trade, which has been in the doldrums for several years, is now stronger than at any time since the initial bounce-back from the recession in 2010.
“This will be a big help in offsetting the headwinds from weaker consumer spending.”
The think tank said sterling’s slump since the EU referendum result will cause exports to grow by 6.7 per cent and 5.3 per cent respectively for 2017 and 2018, with net trade adding 0.2 per cent to GDP this year and 0.6 per cent next year.
The Office for National Statistics (ONS) announced last week that GDP grew by 0.7 per cent in the fourth quarter of 2016.
Britain’s deficit in goods and services, the gap between exports and imports, expanded by £700 million on the month to £3.7bn in February, the ONS revealed on Friday. Stripping out erratic items such as ships, silver, aircraft and precious stones, the trade deficit fell to £2.5bn from £3bn in January.
Spencer said: “With unfettered access to the single market for now and a weaker pound, exporters are enjoying the best of both worlds. However, investment in new export capacity and the UK supply chain will be necessary.”