UK consumer spending fell post-Brexit vote, says MasterCard

Mastercard: priceless Pay campaign
Mastercard: priceless Pay campaign

UK consumer spending fell precipitously at the weekend following the Brexit result, according to a MasterCard executive who was speaking while on a visit to New Zealand this week.

Sarah Quinlan, the credit card giant’s US-based senior vice president for market insights, said consumer spending had seen a "dramatic" fall in Britain having previously started to recover from a dip caused by the referendum date announcement in February.

She told BusinessDesk in an interview that spending on travel had been starting to pick up in the UK, along with higher discretionary spending on jewellery and other retail goods. "To that now fall off is quite concerning," she said, adding that before the referendum, the UK had been one of only two consumer markets (along with the US) that were seeing strong performances.

UK retailers have largely avoided commenting on their prospects since the Brexit vote with large listed firms always sensitive that they could affect their share prices.

But Carpetright spoke out about future "uncertainty" today as it announced strong full-year results. Reporting underlying pre-tax profits and like-for-like sales up in both the UK and Europe, it cautioned that trading conditions in the early weeks of the new financial year have been more challenging.

"The outlook has been further complicated by the outcome of last week's referendum… we are cautious about the impact the associated uncertainty will have on consumer confidence," Carpetright said in a statement.

Meanwhile Next's chief executive officer Lord Wolfson, a prominent Leave campaigner, yesterday delivered a mixed message in an interview with The Guardian  when he said the leave vote was likely to raise prices of retail goods but the longer-term outlook stays strong.

Wolfson said prices will rise but retailers with currency hedges in place will be protected from the fall in the exchange rate against the dollar so that price rises for goods sourced in dollars are unlikely to kick-in until next year.

He also insisted there was "no logical reason" for consumer spending to fall in the short-term due to the two years it would take to leave the EU. "There has been no change in the underlying economy," he stressed.

"As far as Next is concerned our forecasts have already factored-in a consumer downturn and other retailers may also have a degree of pessimism in their budgets."

But Sport Direct, which saw a share price fall on Friday and another on Monday, was more pessimistic. The company warned after the vote that market volatility, sterling/dollar exchange rate fluctuations due to the referendum result, and the lack of transparency as to those rates in the short-to-medium term are "likely to impact purchases for which the company is currently not hedged for the FY17 period and beyond."

While MasterCard’s Quinlan gave no further explanation for the latest spending fall, it is clear that the result took both the Remain and Leave camps by surprise and set off a chain of events likely to cause on-going instability that could hurt consumer confidence further.

Prime minister David Cameron’s resignation, a fall in the value of the pound, share price falls and warnings of price rises ahead could all dent spending in the short term.

On Friday and Monday, Sports Direct was not the only UK retailer to see its share price falling, with Sainsbury’s, Next, Debenhams, Asos, Tesco and Morrisons all down.

Consumer businesses with heavy UK exposure such as Vodafone also suffered a share rice fall, as did listed agency holding company WPP.

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