UK consumer spending hit by rising inflation and Brexit uncertainty

Published on: 21st August 2017

Further slowdown is expected if inflation reaches 3%, as experts predict it will.

As reported by the Independent, retail sales, a key barometer of the strength of the UK consumer, were weak again in July, reflecting the hit to spending power from spiking inflation and fragile household confidence that is marking the build-up to Brexit.

Sales volumes were up 0.3% in July, following 0.3% growth the previous month, the Office for National Statistics reported. But the annual rate of growth dropped sharply to 1.3% from 2.8% previously. Retail sales account for around 30% of household spending, which in turn accounts for around 60% of UK GDP.

Consumer spending was responsible for the surprisingly strong GDP growth in the wake of last year’s referendum. But inflation was 2.6% in July, up from just 0.6% a year earlier, primarily reflecting the slump in the value of the pound in the wake of the Brexit vote, and outstripping nominal average wage growth. Overall GDP growth was just 0.3% in the second quarter of 2017, well down from the 0.7% growth in the final quarter of 2016.

Howard Archer of the Ey Item Club, the non-governmental economic forecasting group, commented: “Consumer confidence is brittle and caution over making major purchases appears to have been reinforced by heightened economic, political and Brexit uncertainties.”

The ONS reported that the sales volumes in food stores was up 1.5% in July, but that was largely offset by falls in sales in non-food stores. Clothing and fuel sales volumes were both down by 0.5% and 1.1% respectively.


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