Inflation is rising and wages are falling, which could be taking an understandable toll on your wallet – so much so that you're probably keeping an eye on how much you're spending. It's not surprising, then, that research from Visa shows that consumer spending has fallen for the first time in nearly four years, as higher living costs eat into household budgets.
The figures show that household spending dipped by 0.8% year-on-year in May, the first drop in expenditure since September 2013, which essentially means that consumers spent less in May than they did a year ago.
Specifically, we're spending a lot less on clothing and footwear, which saw spending fall by 5.2% over the year, the quickest fall in expenditure on these items since April 2012, while spending on food and drink fell by 0.6% and transport & communication spending plummeted by 7.9%.
However, some categories saw spending rise over the year, most notably "experience" style spending: the miscellaneous goods & services category, which includes hairdressers and jewellery, saw spending rise by 7.1%, while spending in hotels, restaurants & bars was up by 3.3% and recreation/culture spending rose by 2.2%. Nonetheless, even spending in these sectors grew at a slower pace, as Kevin Jenkins, UK & Ireland managing director at Visa, explains:
"Consumer spending fell for the first time in nearly four years in May, following some marked slowdowns in growth since the beginning of the year. Our Index clearly shows that with rising prices and stalling wage growth, more of us are starting to feel the squeeze.
"Retailers of non-essential goods were among the worst hit, with clothing and household goods seeing sharp declines in sales. The experience sectors continued to record some growth, though at much softer rates, suggesting consumers were reining in their discretionary spending."
Unfortunately, it doesn't look as though things will improve anytime soon, either. Annabel Fiddes, economist at IHS Markit, says that the outlook "continues to look relatively bleak, with households facing faster increases in living costs and muted wage growth.
"The squeeze on household finances is likely to get worse as the Bank of England forecasts faster increases in [inflation] in the coming months. Combined with relatively low levels of consumer confidence, uncertainty around the outcome of Brexit and a slowdown in UK economic growth, it's likely we will continue to see weaker expenditure trends at least in the near-term."
If you're starting to get a bit concerned about your finances, now's the time to take action. Start by going through your budget to look for any things you can cut back on, and if you can, put any extra money saved into a dedicated savings account. After all, the typical Brit only has enough savings to last for 32 days, so given how unpredictable things are at the moment, it might be a good time to enhance your financial buffer!
You may want to take a look at your other financial products, too, such as your insurance policies and mortgage contract, to see if there are any savings that can be made. This is particularly the case if you're coming to the end of a fixed rate mortgage deal – our research shows that you could save thousands of pounds by switching from your lender's standard variable rate to a record low two-year mortgage, so start comparing your remortgage options to get the best rates.
Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.