Consumer spending increased by 1.3% on the year in May, up from 0.6% in April, the fastest year-on-year rise in household expenditure since October 2010.
Dr Howard Archer, Chief European & UK Economist at IHS Global Insight, told Central Lobby that the data from
Visa Europeis one of a "recent series of upbeat news on both the consumer and the economy".
"It ties in with an upbeat survey for retail sales in May from the
British Retail Consortium- which showed retail sales values up 4.4% year-on-year - and with Gfk/NOP reporting that consumer confidence spiked up in May to be at its equal highest level for two years," he said.
"Clearly, how much consumers spend over the coming months is crucial to the economy’s performance, and the prospects for this currently look mixed."
Dr Archer said much will depend on how employment develops and whether recent signs of economic improvement lift consumer confidence on a sustained basis and fuel an increased willingness to spend.
"Inflation and wage developments will obviously also be critical," he added.
"After improving significantly overall in 2012, consumers’ purchasing power has recently been under increased pressure from largely higher inflation and very weak earnings growth, while employment has faltered modestly after seeing decent growth through 2012. Furthermore, inflation is still likely to rise to around 3.0% during the summer despite dipping to 2.4% in April from 2.8% in March.
"Nevertheless, there are positives for consumer spending and it is encouraging that confidence spiked up to an equal two-year high in May.
"Employment is still at a relatively high level while very low and recently reduced mortgage interest rates free up extra money for spending.
"Meanwhile, April’s dip in consumer price inflation to 2.4%, and the recent overall marked retreat in oil and commodity prices, suggest that inflation is likely to peak close to 3.0% this summer rather than 3.5% and should start to fall back from the autumn. A modestly improving housing market could also be moderately supportive to consumer spending."
Jeremy Nicholds, EVP, Commercial Development at Visa Europe said the data suggests "a tentative strengthening of consumer confidence".
Visa Europe’s UK Expenditure Index takes card spending data and adjusts it for a variety of factors to create a like-for-like comparison of consumer spending, providing a robust indicator of consumer spending habits.
Chris Williamson, Chief Economist at Markit said:
“Consumers increased their spending in May, despite the coldest weather for 50 years hitting demand for seasonal items such as summer clothing and outdoor furniture.
“The data adds to the picture of an economy that is on the mend, but progress is frustratingly slow.
"Spending is rising, in line with recent upturn in consumer confidence, but any growth is being limited by bad weather alongside the twin headwinds of high inflation and record weak pay growth. However, the nicer weather enjoyed in recent days may lead to a welcome June bounce in pent-up summer-related spending and provide an extra boost to the economy.”
Visa Europe’s UK Expenditure Index monitors eight broad sectors. Expenditure increased solidly in the Misc. Goods & Services category, which includes spending on personal care (e.g. hairdressing), personal effects (e.g. jewellery), and financial services (e.g. insurance premiums), and at Hotels and Restaurants. Spending also increased modestly in the Transport & Communication sector.
Spending decreased in five of the eight monitored categories during May. The strongest reduction was recorded in Health & Education, followed by Food, Beverages & Tobacco. Spending fell slightly in Clothing & Footwear, Household Goods and Recreation & Culture.