Supermarkets hit as Britain goes on holiday

Hotels, restaurants and bars saw the biggest jump in spending

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The winners and losers of Britain’s economic recovery will become clearer today when figures show that consumers are spending more on holidays, eating out and going to the cinema than on supermarket and clothes shopping.

With the economy above pre-financial crisis levels, wages rising faster than inflation and the general election out the way, people have begun loosening their purse strings, according to Visa Europe and Markit.

Analysts found that consumer spending rose 1.9 per cent in July, up from 1.4 per cent in June, with stronger than average growth rates seen over the first half of 2015.

Hotels, restaurants and bars saw the biggest jump in spending, up 8.6 per cent on the year, while cinema and entertainment trips rose 5.6 per cent, only slightly below record highs in June of 5.7 per cent.

By comparison, clothing and footwear sales dropped 0.6 per cent during the month, while food and drink sales at grocers rose just 0.4 per cent.

Kevin Jenkins, UK and Ireland managing director of Visa Europe, said: “Looking forward, it will be interesting to see how consumers react to the possibility of interest rate increases looming on the horizon.

“The overall outlook for consumer spending remains positive rather than excessive, with low inflation and a pick-up in wages continuing to put money into the pocket of consumers.”

The UK’s largest supermarkets have struggled recently as a bitter price war with budget rivals Aldi and Lidl eats into profits, while a fall in oil and commodity prices has not helped.

Supermarket bosses have complained that shoppers have not been spending more at their stores, but eating out instead. This was backed up by a report by The Share Centre, which found that the food retailers saw £10.7bn wiped off their profits last year, with Morrisons, Tesco and Sainsbury’s among the hardest hit.

Helal Miah, investment research analyst at The Share Centre, said: “The price war in the supermarket industry is just the latest in the long succession of difficulties to hit the UK’s largest stocks. These big multinationals are much less able to benefit from the strong performance of the UK economy.”

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