Consumers cut back on discretionary spending
Retail sales rose by 1.4 percent in July, according to figures released today by the British Retail Consortium. This was largely driven by food sales which increased by 3.4 percent with non-food sales declining by 0.4 percent in the three months to July. From Laith Khalaf, Senior Analyst, Hargreaves Lansdown.
The headline rise in retail sales to July masks some concerning detail. Consumers may be spending more on food, and they don’t have much choice seeing as prices are rising, but they are cutting back on non-food items.
This is a further sign that the UK consumer is reining in their discretionary spending, which is a concern for retailers, but also the economy at large. Inflation is rising faster than wages, the savings ratio is at a record low and unsecured borrowing is at its highest level since 2008, none of which paints a happy picture of consumer finances.
The one saving grace is that low interest rates are keeping borrowing costs down, underlining why the Bank of England is going to find it very difficult to raise rates in the current economic climate.
A large part of the consumer squeeze of course comes down to the falling pound pushing up the price of imported goods. This currency adjustment will eventually make its way out of the inflationary equation, though the question is how quickly it will do so, and what damage it will do to consumer purses in the meantime.’