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Consumer spending on hotels, restaurants and bars rises despite falls overall

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Consumer spending on hotels, restaurants and bars rises despite falls overall

Hotels, restaurants and bars enjoyed a 4.9% rise in spending in June 2017, making hospitality one of the stand-out sectors in what proved to be a difficult quarter for other sectors of the economy.

UK household expenditure fell for the second month in a row during June according to the latest data from Visa UK. On an annual basis, spending was down by 0.3%, which was a slight improvement on the 0.9% decline seen in May. Nonetheless, June’s figure rounded off the weakest quarter for expenditure since Q3 2013, Visa UK said.

While hotels, restaurants and bars were up 4.9% year-on-year in June, there were significant falls in transport and communication (a drop of 5.8%) and household goods (down 3.4%). Spending on recreation and culture was down by 1.2% – the first fall in four years, suggesting that pressures on household finances are finally starting to affect the so-far-buoyant experience economy.

Visa said that the overall fall in consumer spending was centred around a further decline in face-to-face spending, as expenditure through e-commerce continued to rise.

Visa UK tracks several small businesses on a monthly basis to ask them for their views on the economy, business conditions, and their forecasts for the month ahead.

Josh Beer, of the Illustrious Pub Company, Cambridgeshire said: “It’s been a challenging month for us, with sales down 6% on last year. The decline is likely caused by customers hunting for deals when they dine out. This hasn’t come as a shock and we’re looking to cut costs by doing more work ourselves. It’s been quieter for other restaurants in the area too, some businesses have reduced their opening hours and others have closed altogether.”

Quan Nguyen, of Chi Café, London added: “June was a rather tough month for us. A big office around the corner moved to a different part of London, taking away a large number of our regulars. We had less passing trade too, despite the weather getting better. At the same time, with rising inflation almost all of our main ingredients have increased in prices, putting more pressure on our cash flow.”

Kevin Jenkins, UK & Ireland managing director at Visa commented: “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. Consumer spending fell for the second month in a row, rounding off the worst quarter since Q3 2013.

“It’s clear that inflation is beginning to affect shopping habits too, 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. The experience sector – which the Index has shown consistently outperforming in recent years – has started to feel the impact too. Spend on recreation and culture dropped for the first time in nearly four years.

“The recent heatwave and summer sales have failed to reverse the high street’s fortunes, with face-to-face spend falling for the second consecutive month. On the other hand, e-commerce spend continued to grow, albeit at a slower rate compared to May.”

Annabel Fiddes, economist at IHS Markit, which helped to compile Visa UK’s data, said: “The latest Visa UK CSI numbers revealed that household spending declined for the second month in a row in June. Although the annual rate of decline softened from May’s -0.9% to -0.3%, the fall rounded off the worst quarter for spend since Q3 2013.

“The marked deterioration in household expenditure trends since last year comes at a time when households are facing an increasingly challenging scenario of rising living costs and weaker wage growth. Consumer confidence has also been dampened by uncertainties linked to the outcome of the ongoing Brexit negotiations, the inconclusive general election result, as well as relatively lacklustre growth across the UK economy.

“The downbeat data may add to calls for the Bank of England to keep interest rates lower for longer, as weaker consumer spending is likely to weigh on economic growth in the months ahead.”

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