Consumers are finally “feeling the squeeze” of inflation, as businesses and shoppers delay spending decisions before Thursday’s general election and the start of Brexit talks.
Three new surveys suggest that spending growth is slowing on the high street and in the dominant services sector, dampening expectations of a strong rebound from a weak first quarter.
Economists said that retailers had been “brought back to down to earth with a bump” after Easter’s sales boost evaporated in May, while those working in the services sector said that competition for new work was intense amid squeezed consumer budgets.
The new data highlights the impact of rising inflation, as a recovery in oil prices and the fall in the value of the pound has pushed up costs in the supermarket and at the petrol pump.
It was not all gloomy news, however. PMI reports for the manufacturing and construction sectors beat expectations for May after delivering solid performances.
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Chris Williamson, of IHS Markit, said: “Despite slower growth in May, the surveys indicate that the economy has regained some momentum in the second quarter. The three PMI surveys are running at levels that are historically consistent with GDP growing at a robust 0.5 per cent rate, albeit with the slowing in May posing some downside risks to the near-term outlook.
“Optimism about the year ahead is running below the long-run average, weighed down principally by concerns over Brexit, political uncertainty and weaker spending by households.
“However, at the moment firms generally remain upbeat and in expansion mode. The employment indicators from the three PMI surveys are consistent with around 30,000 private sector jobs being added each month.”
Data from Barclaycard showed that shoppers had reduced spending across several categories in May, including groceries and petrol as well as household goods and clothing.
Consumer spending growth fell to 2.8 per cent year-on-year in May, a ten-month low.
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Supermarket spending rose by 1.5 per cent in May compared with the same period last year, down from 10.3 per cent the previous month, while spending on clothing fell by 2.9 per cent year-on-year.
Barclaycard said that the consumers were paring back on non-essential items amid rising fuel prices and weekly shopping bills, with inflation rising to a three-year high of 2.7 per cent.
Fifty-three per cent of consumers that it surveyed felt confident about their household finances, the lowest level since the start of 2015 and down from 70 per cent in March.
Paul Lockstone, Barclaycard managing director, said: “With consumer prices inflation running at its highest rate since 2013, it’s no surprise that more of us are starting to feel the squeeze of inflation and slower wage growth, perhaps prompting small changes to our spending patterns.”
Separate figures from the British Retail Consortium and KPMG showed that UK retail sales had fallen by 0.4 per cent in May on a like-for-like basis compared with last year.
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Total sales rose by 0.2 per cent, which again was significantly down on the 1.4 per cent growth recorded last May.
The BRC said that the sales growth recorded last month was the lowest total since January and below the three-month and yearly averages of 1.9 per cent and 1.2 per cent, respectively. Much of the fall was driven by weak sales of non-food products, which were down 0.3 per cent like-for-like during the period, the worst performance since May 2011.
Paul Martin, UK head of retail at KPMG, said that retailers had been “brought back down to earth with a bump” after the Easter sales boost.
The disappointing data from Barclaycard came after a closely watched survey revealed that activity in the dominant services sector had slipped in May as businesses reported that consumers were cutting back on spending and clients were delaying decisions before the general election.
The purchasing managers’ index for the services sector, considered to be one of the best indicators of growth, slipped to 53.8 in May after rising to a four-month high of 55.8 in April. Any figure above 50 indicates growth.
