Caution takes hold as spend growth slows

Growth in credit and debit card spending slowed to its lowest rate this year during the third quarter as consumers cut back on non-essential items.

A total of 87.6bn was spent on the 91 million Visa credit, debit and pre-paid cards in issue in the UK during the three months to the end of September, compared with 82bn during the second quarter.

But despite spending levels also increasing year-on-year for the fifth quarter in a row, the pace at which spending is growing slowed, according to Visa Europe.

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Card spending was 7.9 per cent higher during the third quarter of the year compared with the same period of 2009, down from year-on-year growth rates of 11.3 per cent in the second quarter and 8.4 per cent during the first part of the year.

The group said that although total spending had recovered to pre-recession levels, the fact that the rate of growth was flattening out, indicated that consumer spending would not play a major role in the economic recovery.

The slowdown was most dramatic in areas associated with discretionary spending.

The amount spent on recreation and culture, such as holidays and cinema and theatre trips, as well as consumer goods, including cameras and video games, edged ahead by just 0.4 per cent year-on-year, down from a rise of 7.5 per cent during the second quarter.

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Spending growth on hotels and restaurants was also more subdued, at 9.8 per cent, down from 13.9 per cent during the previous three months.

The amount people spent on clothing and footwear continued to see double digit gains at 12.1 per cent, but this was considerably lower than the increase of 17.6 per cent in the first quarter.

Health and education was the only area in which spending rose at a faster rate in the third quarter than it had during the second one.

There was a mixed pattern of spending during the quarter, with July seeing strong year-on-year growth, before the rate slumped during August, but recovered in September.

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Dr Steve Perry, commercial director at Visa Europe, said: "Whilst consumer spending is still growing, there are clear warning signs that consumers remain cautious about the future.

"While the total amount being spent on cards, especially on debit, has reached its highest levels since the start of the recession, it seems unlikely that these strong growth rates will continue.

"However, the data still suggest there will be a more muted recovery rather than a double-dip recession."

The index is based on spending on Visa cards, which account for 1 out of every 4 spent in the UK.