Household spending has fallen at its fastest rate since 2013 as rising price force consumers to cut back, according to Visa’s consumer spending index.
Spending fell by 0.3% between April and June, compared to the same time last year. This is the biggest drop since the third quarter of 2013.
The report adds to growing evidence that household finances are coming under increasing strain as prices rise while wage growth remains stagnant. Spending on household goods fell by 3.4% in June compared to the same time last year, while leisure and culture spending fell by 1.2%, the first drop in four years. Spending on clothing and footwear, meanwhile, was down 0.5%.
Visa’s UK and Ireland managing director, Kevin Jenkins, said; June data provides further evidence that an increase in the cost of living, coupled with slowing wage growth, are beginning to squeeze household disposable income.
“It’s clear that inflation is beginning to affect shopping habits, with consumers diverting their spending to essentials. Spend on food and drink grew by nearly 2%, while household goods suffered from a substantial drop as consumers cut back on big-ticket furniture and homewares.”
Official data due to be published on Wednesday is expected to show wage growth falling to 1.8% year on year in the three months to May. This would widen the gap between wage growth and inflation even further as inflation currently stands at 2.9%.
Wage growth is unlikely to pick up any time soon, as a new survey of chief financial officers by Deloitte shows that business confidence has fallen and concerns have grown at UK business about their prospects.
42% of CFOs are now saying they are less optimistic about their companies’ prospects. This is up significantly from 17% in the first quarter of 2017.
Ian Stewart, chief economist at Deloitte, said; Business sentiment has been on a rollercoaster in the last 18 months, slumping after the referendum, staging a strong recovery and then falling again in the wake of the general election.”
Businesses with concerns about their future prospects are unlikely to increase wages significantly, which leaves many UK homeowners trapped between falling incomes and rising costs.
While most people will attempt to cut non-essential spending first, there is a danger that if this trend continues it could start to threaten the affordability of some mortgages.
If you’re a homeowner with outstanding mortgage debt and you’re concerned about the affordability of your payments, contact Negative Equity UK on 0161 631 2727 or online at negativeequityuk.com.