1 Visa’s UK Consumer Spending Index | © Copyright 2018 Visa. All Rights Reserved 1 Visa’s UK Consumer Spending Index | © Copyright 2018 Visa. All Rights Reserved

Headline Findings:

Consumer spending has weakest start to the year since 2012

Consumer spending: falls -1.1% year-on-year, declining for ninth time in ten months

Face-to-Face spend: -2.5% on the year, while eCommerce rises only slightly (+0.2%)

Recreation & Culture sees its greatest decline since April 2010

12 March 2018

Visa's UK Consumer Spending Index Compiled by IHS Markit on behalf of Visa

Total CSI Expenditure, Year on Year

Spending annual % change

Face-to-face

eComm.

Overall spending

Feb’18Jan’18Dec’17

-1.2 -1.1

+1.5 +0.2+2.1

-4.0-2.6

-1.0

-2.5

Mark Antipof, Chief Commercial Officer at Visa, commented: “Britons have been in belt-tightening mode since last summer. February’s cold snap certainly didn’t alleviate this situation, particularly when we shine a spotlight on high street spending, and recreation and culture in particular, which saw its biggest decline since April 2010.

“On the other hand, hotels, restaurants and bars experienced another strong month. The resilience of this sector is somewhat unique, having reported uninterrupted growth since February 2011.

“As we look ahead into March, consumer spending is at risk of posting one of the worst Q1 results on record. Retailers will no doubt be hoping that the milder weather will put a spring in shoppers’ steps.”

Annabel Fiddes, Principal Economist at IHS Markit, said:“The latest Visa UK CSI data pointed to a further modest reduction in consumer spending in February, with expenditure down -1.1% compared to a year ago. The High Street remained a key source of weakness, seeing spend fall for the tenth month in a row, while growth in eCommerce spending continued to disappoint.

“Rising living costs, lacklustre wage growth and relatively subdued consumer confidence are all likely playing a part in the ongoing reduction in household spending. Unless the squeeze on incomes subsides, it looks unlikely that household spending will pick up anytime soon.”

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

-15%

-10%

-5%

0%

5%

10%

15%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Total CSI Expenditure, Year-on-Year, SA (LHS)

Total CSI Expenditure, 3M/3M, SA (RHS)

Annual % Change 3m/3m % Change

The latest Visa UK CSI data signalled a further modest reduction in overall consumer spending in February. On an annual basis expenditure declined -1.1%, similar to the -1.2% reduction seen at the start of 2018. Nonetheless, the index shows that overall household spending has now fallen in nine of the past ten months on this measure.

Spending split by channel indicated that weakness continued to stem from the High Street, with Face-to-Face expenditure down -2.5% compared to last year. Although strong, this marked the weakest rate of reduction since last June. eCommerce spending meanwhile increased only slightly, rising at the slowest pace for ten months in February (+0.2%).

(Continues overleaf)

2 Visa’s UK Consumer Spending Index | © Copyright 2018 Visa. All Rights Reserved 2 Visa’s UK Consumer Spending Index | © Copyright 2018 Visa. All Rights Reserved

eCommerce and Face-to-Face SpendThe overall drop in consumer spending appeared to be driven by a further decline in Face-to-Face expenditure during February, as eCommerce spend was up slightly compared to a year ago.

Spending through Face-to-Face channels fell by -2.5% year-on-year in February, and stretched the current sequence of decline to ten months. That said, the pace of reduction was the softest since June 2017.

Growth of expenditure across eCommerce categories meanwhile slowed in February, rising by just +0.2% on the year. This followed a +1.5% rise in January, and marked the weakest rate of growth in the current ten-month sequence of expansion.

Spending by SectorVisa’s UK Consumer Spending Index monitors eight broad sectors. Summary data for annual growth rates in December, January and February, which are not adjusted for seasonality and trading days, are provided in the table opposite.

Half of the eight broad expenditure categories registered lower spending volumes compared to a year ago in February. The steepest drop was seen in Recreation & Culture, which fell at the quickest pace since April 2010. Expenditure also fell solidly across Transport & Communication categories, despite the pace of reduction easing to a six-month low. Modest declines in spend were meanwhile seen across Clothing & Footwear and Household Goods categories.

In contrast, expenditure was broadly stable at Food & Drink retailers, after a modest fall in January. Overall, Hotels, Restaurants & Bars was the strongest performing sector, seeing expenditure rise solidly on an annual basis.

UK CSI: eCommerce vs Face-to-Face*Annual % Change

Annual Growth Rates By SectorData not adjusted for seasonality and trading days

Visa’s UK Consumer Spending Index

(Continued from page 1)

Expenditure fell across half of the eight broad spending categories during February. Recreation & Culture noted the quickest decline overall (-6.1% year-on-year). Notably, this was the steepest reduction in this category since April 2010. Spending volumes also fell solidly across Transport & Communication (-3.5%), despite the pace of decline easing to its least marked for six months.

Of the sectors that reported growth of expenditure, the strongest rise was seen across Hotels, Restaurants & Bars (+4.4%), followed by Misc. Goods & Services (which includes health, beauty and jewellery) (+4.0%).

*Data not adjusted for seasonality and trading days

Broad Sector Dec ‘17 Jan ‘18 Feb ‘18

Food, Beverages & Tobacco +0.3% -1.8% +0.1%

Clothing & Footwear -2.6% -2.3% -1.6%

Household Goods -3.5% -1.3% -1.1%

Health & Education -2.8% +1.3% +3.8%

Transport & Communication -5.0% -5.6% -3.5%

Recreation & Culture -1.5% -4.3% -6.1%

Hotels, Restaurants & Bars +4.9% +3.7% +4.4%

Misc. Goods & Services +1.1% +6.1% +4.0%

-15%

-10%

-5%

0%

5%

10%

15%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

CSI Expenditure by Channel, eCommerce, Year-on-Year, NSA

CSI Expenditure by Channel, Face-to-Face, Year-on-Year, NSA

Annual % Change

3 Visa’s UK Consumer Spending Index | © Copyright 2018 Visa. All Rights Reserved 3 Visa’s UK Consumer Spending Index | © Copyright 2018 Visa. All Rights Reserved

Official Data ComparisonsAnnual percentage changes in Visa’s UK Consumer Spending Index have an excellent relationship with a number of official data series, in particular Gross Domestic Product (GDP) from the Office for National Statistics (ONS).

Visa’s UK Consumer Spending Index (CSI) data successfully pointed to an overall slowdown in GDP growth in 2017. At the same time, the data have also reflected weaker official household expenditure trends available to date.

Visa UK CSI data showed that household spending fell on an annual basis for the ninth time in the past ten months in February, to suggest that official data trends may remain subdued into 2018.

There are a range of factors weighing on consumer spending, most notably the sustained squeeze on real earnings, as increases in living costs continue to outpace growth in average earnings. Economic growth meanwhile remains relatively sluggish, and confidence towards the outlook remains subdued due to the ongoing uncertainty surrounding Brexit negotiations.

Encouragingly, the labour market remains a bright spot for the UK, with the unemployment rate at a near-four decade low of 4.4% in the three months to December according to latest ONS data. Tightness in the labour market is anticipated to feed through to stronger earnings growth in the coming months, which will be crucial to help revive household spending.

Visa’s UK Consumer Spending Index uses card transaction data to provide a robust indicator of total consumer expenditure across all payment methods and is used by a range of stakeholders to gain insights into consumer spending, including HM Treasury. It is based on spending on all Visa debit, credit and prepaid cards which are used to make an average of over 2.3 billion transactions every quarter and account for £1 in £3 of all UK spending. Working with Markit, these card spending data figures are adjusted for a variety of factors such as card issuance, changing consumer preferences to pay by card rather than cash and inflation. These adjustments mean that these data are distinct from Visa’s business performance and the Index reflects overall consumer spending, not just that on cards.

Visa’s UK Consumer Spending Index

UK CSI & GDP - Annual % Change

UK CSI & Consumer Confidence

UK CSI & Household Expenditure - Annual % Change

Further information:

Ian Burge, Visa Tel: +44 (0) 2031442196 Email: burgei@visa.com

Giang Nguyen, H+K Strategies Tel: 020 7413 3153 Email: giang.nguyen@hkstrategies.com

Sources for Charts: Visa, ONS, European Commission NSA: Non-Seasonally Adjusted, SA: Seasonally Adjusted

-6%

-4%

-2%

0%

2%

4%

6%

8%

-15%

-10%

-5%

0%

5%

10%

15%Total CSI Expenditure Year-on-Year, SA (LHS)ONS UK Household Expenditure, Year-on-Year, SA (RHS)

Annual % Change Annual % Change

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

-15%

-10%

-5%

0%

5%

10%

15%Total CSI Expenditure Year-on-Year, SA (LHS)ONS UK Gross Domestic Product, Year-on-Year, SA (RHS)

Annual % Change Annual % Change

-40

-35

-30

-25

-20

-15

-10

-5

0

5

10

-15%

-10%

-5%

0%

5%

10%

15%

Total CSI Expenditure, Year-on-Year, SA (LHS)DG ECFIN Consumer Confidence, Year-on-Year, SA (RHS)

Annual % Change Net Balance

4 Visa’s UK Consumer Spending Index | © Copyright 2018 Visa. All Rights Reserved 4 Visa’s UK Consumer Spending Index | © Copyright 2018 Visa. All Rights Reserved

Utilising Visa’s unique position at the heart of the payments ecosystem – with £1 in every £3 spent in the UK on a Visa card – Visa’s UK Consumer Spending Index is designed to provide a monthly assessment of underlying consumer spend patterns in the UK economy. The Index is based on data for all Visa debit, credit and prepaid cards held by UK cardholders, with a number of adjustments made to ensure an accurate indication of consumer spending trends is provided.

First, the data are cleaned to remove any spending on items that are not ordinarily classified as consumer expenditure (such as spending on savings products or taxes). Moreover, refunds and cashback are also accounted for at this stage. Second, the data are deflated by changes in the number of active Visa cards in order to account for the expansion of Visa’s card operations, particularly on the debit side. Thirdly, an adjustment is made to offset changing consumer preferences for card usage. This is based on data on payments at terminals and cash withdrawals sourced from a report published by the ECB. Fourthly, to account for inflation, the data are deflated by changes in the consumer price index to provide an indicator of real changes in household spending. Finally, the headline data are seasonally and trading day adjusted.

From September 2015, in addition to spending at domestic-based merchants in the UK, we also include spending at selected online companies operating outside of the UK that sell items such as clothing, holidays, books, etc. The addition is designed to ensure that we successfully capture changing trends in spending and confidence amongst UK consumers – primary aims of our research.

‘Visa’s UK Consumer Spending Index’ spending by product categories consist of the following standard Classification of Individual Consumption According to Purpose (COICOP) groups:

Notes and Further Information

Food, Beverages & Tobacco Group 1,2

Health & Education Group 6,10

Clothing & Footwear Group 3

Communication & Transport Group 7,8

Hotels & Restaurants Group 11

Housing & Household Goods Group 4,5

Recreation & Culture Group 9

Miscellaneous Goods & Services Group 12

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Our advanced global processing network, VisaNet, provides secure and reliable payments around the world, and is capable of handling more than 65,000 transaction messages a second.

The company’s relentless focus on innovation is a catalyst for the rapid growth of connected commerce on any device, and a driving force behind the dream of a cashless future for everyone, everywhere.

As the world moves from analogue to digital, Visa is applying our brand, products, people, network and scale to reshape the future of commerce.

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