UK Edition
Shopping boom slows down as inflation eats into spending power
British households splashed out on entertainment and meals out last month, indicating that they are still happy to spend.
Confident families' spending has boosted the economy in the months since the Brexit vote, but inflation is now denting growth in spending power, as the cost of imported foods in particular rises on the back of the weak pound.
Consumer spending grew by 4.6pc in March compared with the same month of 2016, according to Barclaycard, with entertainment spending up 11.6pc, restaurant payments rising 12.2pc and spending on pub visits increasing by 12.5pc.
But the increase was also driven by a 16pc rise in the price of petrol, forcing drivers to spend more filling up the tank.
Food spending dipped a touch, the card company said, which it pins on the later Easter date which pushed back some spending into April this year.
The overall pace of spending growth is down relatively sharply - spending rose by a record high of 6.1pc in the year to February, so March’s numbers were on the weak side by comparison.
It comes ahead of today's inflation data which is expected to show consumer prices rose by 2.3pc in the 12 months to March - which is above the rate of income growth, and above the Bank of England's 2pc target.
The British Retail Consortium also found weak spending levels last month. Total sales fell by 0.2pc, the business group said, compared with March of 2016.
That is the first monthly decline since August.
Spending increased on food, shoes, beauty products, home accessories, stationery and jewellery, the BRC said.
But households cut back in other areas such as furniture, clothes, and toys and baby equipment.
Looking at the bigger picture though, the slowdown in non-food growth persists and it now stands at its lowest three-month average for nearly six years, said the BRC’s chief executive Helen Dickinson.
“Marginal growth in food was bolstered by slightly higher shop prices following increases in global food commodity costs and a weaker pound," Dickinson added.
"The pressure on prices continues to build, albeit slowly, and will inevitably put a tighter squeeze on disposable income and so, to ensure consumers continue to enjoy great quality, choice and value on goods, securing tariff free-trade must be the priority as the Brexit negotiations begin in earnest.”
Economist Howard Archer at IHS Global Insight said that rising inflation is likely to make life tougher for households and for the wider economy.
“Worrying for UK growth prospects, the fundamentals for consumers look odds-on to weaken markedly further over the coming months as rising inflation eats further into purchasing power with the squeeze reinforced by muted earnings growth. It is also very possible that consumers will face a weakening labour market over the coming months,” he said.
“There is also a strong likelihood that consumer confidence and willingness to buy major items will soften.”