A chorus of downbeat reports on the health of the British economy published on Monday presents a sharp contrast to the chancellor Phillip Hammond’s spring statement message that there is “light at the end of the tunnel”.
Credit card company Visa said spending on cards fell again in February, dropping 1.1%, and that the first quarter of 2018 was on track to be the “worst on record”. It said spending by consumers had fallen in nine out the past 10 months.
The number of shoppers visiting Britain’s high streets also continued to decline last month. High street analysts Springboard said footfall was down 0.5% in February but the picture was worse in shopping centres where the number of visitors was down 0.9%.
The figures will be a challenge to Hammond, who is expected to tell the House of Commons tomorrow that economic growth and productivity have improved, with the public finances in better shape than previously thought.
Surveys of business sentiment also paint a relatively gloomy picture for the economy – apart from optimism among manufacturers benefitting from improved exports and a stronger global economy.
IHS Markit, which conducted the half-yearly survey, said service providers remain much less optimistic than the post-crisis peak seen in early-2014. Services firms and the badly hit construction sector are likely to suffer modest or negative growth this year.
Against the trend, manufacturing firms expect to expand this year and employ more staff. Last week, the digger maker JCB said it plans to create 600 new jobs at its plants in Staffordshire and Derbyshire.
Tim Moore, economist at IHS Market, said: “UK business confidence has edged up since last autumn, but levels of optimism remain among the lowest recorded over the past five years. Consumer-facing areas of the UK service sector were a key area of weakness, with growth expectations curtailed by worries about the outlook for household spending.”
A breakdown of the Visa figures shows the extent to which Britons are tightening their belts. The amount spent on the physical high street fell 2.6% while households also cut back spending on recreation and culture by 6.1%.
“Britons have been in belt-tightening mode since last summer,” said Mark Antipof, chief commercial officer at Visa. “February’s cold snap certainly didn’t alleviate this situation, particularly when we shine a spotlight on high street spending, and recreation and culture in particular, which saw its biggest decline since April 2010.
“As we look ahead into March, consumer spending is at risk of posting one of the worst Q1 results on record,” he added.
A separate study by the EY Item Club found that financial services firms will suffer from weak consumer confidence and rising costs during 2018. It forecast that banks will see a slowdown in one of the most profitable areas of business – consumer credit – which will slow for the first time in five years, dropping to 3% and then 2.8% in 2019, as consumers hit the brakes on the amount of debt they hold. This is a fall from the previous highs of 6.9% growth in 2017 and 8% growth in 2016.
“Inflation is forecast to drop to 2.5% this year from 2.7% in 2017, which will ease the squeeze on household budgets, but real disposable incomes are forecast to only rise by 1.2% in 2018, constraining consumer’s spending power,” said Omar Ali, EY’s UK head of financial services.