Visa Index shows growth in consumer spending

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New data on consumer spending released today by Visa Europe indicates growth of 4.4 per cent in the first quarter of 2011.

The Visa Europe UK Expenditure Index suggests that the UK economy pulled itself out of the "relapse" seen late last year, according to Chris Williamson, chief economist at Markit, who adjusted the data.

"Compared to a year earlier, growth of consumer spending is estimated to have improved in the first quarter," he said.

"However, much of this increase was attributable to January's bounce-back in spending from the coldest December for a century.

"Data for February and March, on the other hand, suggest that a slower growth trend has again become apparent as households fight the growing headwinds of falling real incomes, which fell last year for the first time in thirty years, deficit-reducing tax hikes and looming public sector spending cuts."

Visa Europe said their Expenditure Index tracks "actual spend rather than sentiment or opinion".

It is based on spending on all Visa debit, credit and prepaid cards which are used to make an average of over 1.4 billion transactions every quarter and account for £1 in £4 of all UK spending.

The data is then adjusted by Markit to allow for Visa card issuance, consumer payment preferences and inflation.

The picture painted by the Index is one of low spending growth.

However, on a seasonally adjusted basis, spending in Q1 2011 was 0.5 per cent higher than in Q4 2010.

This is the first time since Q2 2010 that a quarterly expansion has been recorded, but this in part reflects the weather-related weakness in December.

The value of average transactions was higher than in Q4 2010,but fell on a year-on-year basis from £50.03 in Q1 2010 to £49.25 in Q1 2011.

This was despite the recent surge in inflation which saw consumer prices in February rising 4.4 per cent, more than double the official target.

Dr Steve Perry, commercial director at Visa Europe, said:

"It is encouraging that we have now seen seven consecutive quarters of growth, but while the Index shows the Q1 growth rate was higher than that seen in Q4 2010, it is still well below the levels seen in Q2 2010.

"Looking forward we therefore expect consumer spending to keep growing albeit at a low rate.

"It is clear from the sector data that consumers are cutting back in some areas more than others.

"The recreation and culture sector suffered most from this weak spending growth.

"While we are spending more as a nation, households are focused on essentials and seem to be cutting back on certain discretionary items."

Yesterday the OECD cut its second-quarter growth forecast for the UK from 1.3 per cent to one per cent.

At the Budget, the OBR downgraded its growth forecast for 2011 to 1.7 per cent, while the British chambers of commerce predict growth of 1.4 per cent across 2011.

Click here for the full Visa Europe: Q1 2011 UK Expenditure Index