Britain’s vote to leave the EU has had little immediate impact on people’s spending habits, according to new figures that suggest more money was splashed out on clothes, meals out and day trips in July.
Consumer spending picked up in July as the warm weather provided an incentive to eat out and buy new summer clothes, figures from Visa showed, contrasting with signs of a drop in business activity following the June vote to leave the EU.
But releasing its first post-referendum spending report, the payments company said growth was still slower than at the start of the year.
The monthly index, compiled with the financial data company Markit, showed consumer spending rose 1.6% year-on-year in July, up from a growth rate of 0.9% in June.
Kevin Jenkins, UK & Ireland managing director at Visa, said: “July’s data suggests that UK consumer spending is holding up despite the ongoing uncertainty following the referendum, albeit at lower levels of growth than we’ve seen in the last couple of years.
“Looking at the last three months, the index indicates that consumers remain cautious with their spending. Overall growth is hovering nearly one percentage point below the average seen over the past two years.”
The hotels, restaurants and bars sector saw the steepest year-on-year rise in spending, at 8.9%, continuing a trend of people spending on experiences over things. The amount spent on recreation and culture, which includes trips to the cinema and theme parks, rose by 5.2%. Spending on clothing and footwear rebounded from a fall in June to be up 3.9% on the year in July.
Annabel Fiddes, economist at Markit, said the outlook for spending was clouded by fragile consumer confidence.
“Although the July data point to signs of improvement, anxiety around Brexit and a slowing private sector economy may pose further downside risks to expenditure growth for the rest of 2016,” she said.
Against that backdrop the Bank of England cut interest rates to a new record low of 0.25% last week as part of a package of measures to ward off a post-referendum recession. It predicted economic growth would slow sharply in the second half of this year and hinted there would be more cuts to official borrowing costs.
Other indicators on the economy since the Brexit vote show business confidence has deteriorated as companies fret over the UK’s future trading relationships and ability to attract overseas investment.
A monthly health check of firms in England and Wales, released on Monday, suggests most regions recorded declines in activity in July and a three-year run of employment growth came to a halt. Order books deteriorated and a weaker pound, which makes UK imports more expensive, raised cost pressures.
The Lloyds Bank regional PMI report, also compiled with Markit, signalled the sharpest drop in activity for businesses in England since April 2009, when the global financial crisis was buffeting the UK economy.
London suffered the biggest drop in activity while the east of England and the east Midlands defied the broader downturn. In Wales, business activity remained little changed from the month before, according to the poll of purchasing managers at more than 1,200 private manufacturing and services companies.
Tim Hinton at Lloyds Banking Group said: “As expected, business activity has slowed on the back of the EU referendum result. While the impact has been felt across the UK, companies in the south-east and London were hit particularly hard.
“UK firms will likely face challenges in the short-term but the Bank of England’s decision to cut interest rates could help crystallise important investment decisions and in turn support the economy.”
A separate report from accountants BDO suggested that business confidence had dropped to a three-year low based on a collation of existing surveys taken in recent weeks. However, the drop was “not yet as dramatic as may have been predicted”, the authors said.
The next indicator on spending since the referendum vote comes on Tuesday from the British Retail Consortium. There is fresh news on the housing market on Thursday, with a report from the Royal Institution of Chartered Surveyors (RICS).
Economists at Daiwa Capital Markets in London said the reports are “expected to confirm that activity in the retail sector and housing market declined in the weeks following the vote to leave the EU”.
Chris Hare, an economist at Investec, said the improved weather may have supported retail sales in July, as measured by the BRC figures. However, he highlights pressure on spending in future months.
“We see consumer demand softening over time as households face a double hit from slowing employment growth and a real income squeeze from higher imported inflation, due to falls in sterling,” he said.
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