British households kept a tighter grip on their credit cards last month as spending grew at one of the slowest annual rates of the past three years, data from Visa showed on Monday, adding to signs that consumer spending is starting to lose momentum.
Robust consumer spending helped Britain’s economy to outpace its peers last year, even after June’s Brexit vote, but most economists think rising inflation as a result of sterling’s hefty slide will eat into growth in 2017.
Consumer spending, adjusted for inflation, rose just 0.4 per cent on the year in January, down sharply from 2.5 per cent in December and – aside from August, shortly after the Brexit vote – the weakest annual growth rate in more than three years, Visa said.
“Following a bumper Christmas season, there were signs that consumers were starting to rein in their spending at the start of the New Year,” Kevin Jenkins, the managing director of Visa UK and Ireland, said.
The British Retail Consortium reported last week that spending in the November-January festive period grew by the smallest amount since the depths of the financial crisis, while the Confederation of British Industry said its January retail gauge fell by the most since records began in 1983.
On the month, however, Visa said consumer spending was up by 0.5 per cent after a 2.5 per cent dip in December – broadly matching the picture that economists expect from narrower official retail sales data due on Friday.
Most economists think inflation neared the Bank of England’s 2 per cent target last month, after undershooting it for three years which helped support households' disposable income during a period of lacklustre wage growth.
“As a result, households’ purchasing power will be squeezed further which, combined with relatively muted consumer confidence, may lead expenditure to settle on a slower growth trajectory in 2017,” said Annabel Fiddes, an economist at IHS Markit, which compiled the data for Visa.
The figures are based on spending on Visa’s credit and debit cards with adjustments to take account of the growing proportion of purchases made electronically rather than with cash. Unlike Britain’s official retail sales data, they also include spending on entertainment, transport and eating out.
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