'Mounting uncertainty' takes toll on consumer confidence, report says
Household spending saw the weakest increase in more than two years in May as uncertainty over the EU referendum and a slowing global economy knocked consumer confidence, a report has found.
Spending increased by just 0.8% annually in May, slowing down sharply from a 2.6% annual increase in April and marking the slowest rate since February 2014, according to Visa UK's Consumer Spending Index.
The report said "mounting uncertainty towards the EU referendum and a slowing global economy" had taken a toll on consumer confidence.
Kevin Jenkins, UK and Ireland managing director of Visa Europe said: "Following a strong run in the first four months of the year, it seems that consumer spending growth has finally caught up with the uncertainty around the UK economy.
"Shoppers have clearly reined back their spending overall, and in particular, on big ticket items. Of the big drop in spending across the transportation and communications sector, slower growth in car sales appears to be a significant driver."
The report found that spending on the transport and communication sectors fell by 5.2% annually in May, while spending on health and education decreased by 2% annually.
Spending on recreation and culture increased by 4% annually - marking the weakest growth seen for this sector in over two and-a-half years.
The strongest spending growth in May was experienced by hotels, restaurants and bars, which saw a 6.7% annual increase.
Spending on food, beverages and tobacco increased by 1.7% annually, while spending on clothing and footwear saw an annual increase of 4.2%.
This was the first annual increase seen in clothing and footwear for three months, which the report said was likely helped by warmer weather boosting demand for summer clothing.
The index, compiled by Markit, reflects overall consumer spending, not just that on cards.
Annabel Fiddes, an economist at Markit, said: "The latest data add to evidence that growing uncertainty around the economic outlook has contributed to a more cautious spending environment, and suggests that growth could remain muted until uncertainty fades and conditions both at home and abroad show signs of improvement."
A report last week from savings and Isa provider Scottish Friendly and think-tank the Social Market Foundation found nearly one in five (19%) people surveyed said they are "very worried" about the outcome of the EU referendum on June 23.
This was despite households generally having seen a small improvement in the second quarter of this year compared with the previous quarter in the amount of monthly disposable income they have left over after paying for essentials, according to that report, which surveyed 2,000 people.