British income squeeze shows in spending and house-price decline

London

The latest signs are in that British households are coming under increasing pressure from surging inflation.

Consumers curbed their spending for the first time in five years in 2017, according to a survey from Visa on Monday, while a squeeze on incomes was flagged by Halifax as a contributing factor to a decline in house prices last month. The reports highlight how consumers are being hurt by the fallout from the UK's vote to leave the European Union, as uncertainty increases and the pound's decline feeds through into the economy.

"Household purchasing power is being continually eroded," said Annabel Fiddes, principal economist at IHS Markit. "Meanwhile, consumer confidence remains relatively muted amid uncertainties over the strength of the U.K. economy and the ongoing Brexit negotiations. It seems unlikely that expenditure will bounce back to the levels of growth seen in 2016 anytime soon." Visa's UK spending index fell an annual 1 per cent in December, the crucial Christmas shopping period for stores, and is unlikely to recover this year, the credit card company said. A separate report from Halifax showed house prices fell for the first time in six months in December, damped by uncertainty over the economy and the decline in real wage growth.

The figures indicate that the economy will face similar demons this year to those of 2017. Inflation is now at 3.1 per cent, the highest level in more than five-and-a-half years, and wage growth is failing to keep pace. The resulting slowdown is likely to take its toll this year: economists see growth slowing to an annual 1.4 per cent, according to a Bloomberg survey.

Visa said online sales growth slowed to an annual 2 per cent last month, from 2.4 per cent in November, while face-to-face spending slumped 2.7 per cent, declining for an eighth straight month. Debenhams Plc last week warned that earnings will be less than analysts forecast following flat post-Christmas sales.

Separately, a Deloitte survey of UK chief financial officers showed Brexit was their biggest concern in the fourth quarter of last year, and is seen as posing a growing risk to business. About three-quarters also expect it to lead to a worsening of conditions in the long term, up from 60 per cent in the third quarter.

The survey was carried out in early December, and included the views of 112 CFOs, whose companies make up approximately 19 per cent of the U.K. quoted equity market.

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