If you skipped getting a new pair of shoes or going on a foreign vacation last month, you were in good company. In another sign of the uncertainty surrounding Brexit, consumer spending in the UK took a hit as Britons cut their spending on new clothes, cars, and foreign holidays. It’s the latest hit as a string of bad news surrounding the UK’s slumping economy.
Numbers from Visa’s consumer spending index show that spending fell for a third consecutive month in July, creating the longest-running slump in more than four years, meaning that spending is at its weakest point in recent memory. Spending dove 0.8% in July, a large increase over the 0.2% drop in June.
“Consumer spending fell for the third month in a row in July, the first time overall spending had fallen for three consecutive months since February 2013,” said Kevin Jenkins, Visa’s UK and Ireland managing director. “The figure provides further evidence that rising prices and stagnant wage growth are squeezing consumers’ pockets.”
Inflation has continued to outpace wage growth, causing many people to be more cautious about their spending, particularly on non-necessary items. There are also ongoing worries about the overall condition of the economy, especially as the UK heads into the unknown with its official break from the EU looming.
The drop in spending has been particularly difficult for clothing and household goods retailers. New reports show that UK spending numbers have dropped 5.2% for clothing and 4% on housewares. Accountancy firm BDO even said July was the worst month for fashion retailers in eight years; a survey of more than 10,000 stores found that sales were down 3.5% in spite of it being the height of the summer sale season. In a time when most stores should be seeing remarkable growth and success, they are seeing fewer customers spending much less money than normal.
For housewares, the drop is due to a combination of increasing living costs and slower earning growth. Spending on household goods has either fallen or stayed stagnant every month since December.
“Alongside the renewed squeeze on household budgets, uncertainties linger over the direction of the economy and the outcome of the ongoing Brexit negotiations, which is weighing down consumer confidence,” said economist Annabel Fiddes. “All this makes it seem unlikely that consumer spending will recover in the current challenging conditions, and adds to expectations that the Bank of England will not hike rates any time soon.”
Inflation against foreign currency has kept more Britons off the road, meaning international travel numbers and revenue are down. More people in the UK are opting to stay close to home this summer, with a dip in flight bookings leading to a 6.1% drop in transportation and communications spending. However, more people staying home led to an increase in the domestic leisure industry, with a 6% increase in spending at hotels, restaurants, and bars.
It’s not just consumer spending that is down. The UK economy as a whole grew by only 0.3% during the second quarter of 2017, largely due to high living costs and inflation. As Brexit negotiations continue, consumers and experts alike are unsure of the future of the country’s economy, which is also contributing to some consumers’ slowness to make purchases. The consumer spending news comes just days after the Bank of England downgraded its economic outlook amid discussions that uncertainty surrounding Brexit is weighing on businesses and households. That move seems justified now given the new consumer spending numbers.
Ongoing weakness in consumer spending, which is often considered a strong indicator of the strength of the economy, could mean that the UK is in for long-term economic woes and uncertainty. Time will tell if the country can recover from its slump and if consumers will regain confidence in the economy.