British households limit spending to essentials as inflation rises

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British households spent more money on food and other essentials last month but held back on less urgent purchases as they faced rising prices, two sets of industry figures showed on Tuesday.

The data is likely to add to concerns that consumer demand has slowed further after a weak first quarter, as the effect of the fall in the pound after last year's vote to leave the European Union increasingly makes itself felt.

Payments company Barclaycard said year-on-year consumer spending growth slowed to a 15-month low of 2.5 per cent in June from 2.8 per cent in May, as spending on household goods and entertainment slowed.

The British Retail Consortium said its measure of retail spending growth rose to 2.0 per cent last month from 0.2 per cent in May, above its average of 1.4 per cent in the past six months.

But the BRC's chief executive, Helen Dickinson, said the pick-up reflected a temporary boost from warmer weather lifting clothing sales, as well as the higher cost of food.

“Rising food prices are responsible for the main component of growth and have prompted more cautious spending towards discretionary non-food items,” she said.

On a like-for-like basis, which strips out changes in store size, the BRC said sales increased by 1.4 per cent year-on-year after a 0.4 per cent drop in May.

The Barclaycard and BRC figures are not adjusted for inflation, which is running at a near four-year high of 2.9 per cent according to the consumer prices index.

As a result, consumer spending's contribution to second-quarter economic growth - which is adjusted for inflation - may be limited.

Bank of England Governor Mark Carney has said that the extent to which consumer spending slows - and whether stronger exports and investment can compensate for this - will be important in determining if the BoE starts to raise rates.

Three policymakers voted last month for a rate rise, and both Carney and his chief economist Andy Haldane have said they could vote for a rate rise later this year.

But weakening business surveys over the past week have made many economists doubt the BoE will press ahead with its first rate rise in a decade at a time when the shape of Britain's Brexit deal is highly uncertain.

Barclaycard said its data showed shoppers were increasingly going to discount supermarkets and looking for bargains online as they “come to terms with a 'new normal' of subdued wage growth and creeping inflation”.

Spending on necessities had outpaced non-essentials for most of this year, in contrast to previous years.

The BRC said sales of clothing, beauty products and outdoor toys were strong last month - reflecting warm weather and the Muslim festival of Eid al-Fitr. But spending on home furnishings dropped, possibly reflecting a slowing housing market.

Reuters