Consumer spending increases by 3%

Consumer spending recorded its strongest monthly growth in nearly three-and-a-half years in September, as improvements to people's finances led to strong clothing sales as they renewed their winter wardrobes, a study has said.

UK household spending increased by 3% month-on-month, representing the strongest monthly growth seen since May 2009 and following a more subdued 1.2% increase in August, according to Visa Europe's UK expenditure index.

The study said that while improvements in the job market and people's disposable incomes are likely to continue to boost to the economy, low consumer confidence will persist as a dragging factor.

Chris Williamson, chief economist at Markit, which compiles the report for Visa, said: "Going forward, it seems likely that consumer spending will help boost the economy to a greater extent than it has done over the past two years, due to recent improvements in disposable incomes, lower inflation and rising employment.

"However, consumer confidence remains historically low as uncertainty about the economy and job security persists, suggesting that the bounce in spending seen in the third quarter could be as good as it gets for the foreseeable future."

The figures also showed that spending was up by 0.2% on the year to September, in the first annual increase seen since July 2011. The growth was driven by high street shopping, with face-to-face spending rising by 1.6% year-on-year, the first growth since March and the sharpest increase seen since October 2010.

Meanwhile, online spending was down by 1.5% and mail and telephone ordering saw a 3.7% decline, although the online decrease was much less severe than a 9.3% annual fall recorded the previous month.

Clothing and footwear spending saw annual growth of 6.1%, while spending in hotels and restaurants saw the strongest increase, with an 8.2% rise. Spending on food and drink was up by 1.8% year-on-year.

Spending also increased by 1.9% over the quarter, the highest quarterly increase since July 2009.

The index uses spending on all Visa cards, which account for £1 in £3 of all UK spending, as a base and the figures are then adjusted to take account of consumer spending as a whole.