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Consumer spending down as retail sales fall again

Consumer spending has helped the economy to show resilience. But as retail sales fall for third month in a row, the tide could be changing.


Figures by the Office for National Statistics (ONS) show that retail sales has fallen for the third month in a row. The Independent reports that the fall has surprised City analysts who had expected sales to rise by 0.9% in January. Instead, sales volumes fell by 0.3%.

Speaking about the figures, ONS senior statistician Kate Davies said “the evidence suggests that increased prices in fuel and food are significant factors in this slowdown.”

The ONS’ figures show that store prices have continued to rise and that quantities bought and amount spent have gone down. Reuters reporter Jamie McGeever points out that retail sales haven’t fallen for three months in a row in at least two decades. In a tweet, he suggests that inflation as well as “Brexit jitters” could finally be hitting consumers.

You can see more on the retail sales figures at ons.gov.uk.

Could the tide be turning on consumer spending?

Following the vote to leave, Britain’s economy has shown resilience. Many analysts have pointed out that this has largely been due to the strength of consumer spending. The latest retail sales figures, however, show that the tide could be changing.

With the pound’s value having shrunk dramatically since the vote and inflation on the rise, the fact that consumer spending seems to be on a downward trend isn’t a surprise. It was just a matter of when. As we reported in November, former head of Sainsbury’s Justin King warned that it could take time before we see the full effects of Brexit on consumer confidence. Using the 2008-9 financial crisis as an example, King said that it wasn’t until 2010 that there was a noticeable change in how consumers shopped.

More bad news for the pound

The figures spell more bad news for the pound. Reuters reports that the pound fell to a 10-day low against the euro following the news. It quotes chief market analyst Paul Sirani as saying that a slide in consumer spending “could see the pound push lower against both the euro and the dollar.”

Retail was the beating heart of the UK economy in 2016, so with consumer spending expected to slide in the coming months we could see the pound push lower against both the euro and the dollar.

Paul Sirani, chief market analyst at Xtrade

This could well be the sign of things to come as we move closer to Brexit. Pound falls, inflation rises, consumer spending slides and the pound falls further.

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