Election puts a brake on car and retail sales
GROWTH in service industries slowed last month and new car sales went into reverse as consumers tightened belts ahead of the election.
The services sector, which spans pubs, hotels and restaurants, IT and transport and makes up more than three-quarters of UK output, rose at its slowest since February, according to the Purchasing Managers’ Index (PMI) survey.
The index – by IHS Markit and the Chartered Institute of Procurement and Supply (CIP) – remained above the 50-point level denoting expansion, but fell to 53.8 from 55.8 in April.
New business tailed off amid “squeezed household budgets and, in some cases, delayed decision making among clients ahead of the General Election”, it said.
Economists said the services data, combined with last week’s construction and manufacturing PMI reports, suggest the economy is set to grow 0.5 per cent in the second quarter compared with 0.2 per cent over the past three months.
Duncan Brock of the CIPS said: “Not even stiff competition between businesses absorbing higher prices for food and the effects of the national living wage could tempt consumers to spend.
“Businesses also delayed crucial buying decisions on the back of doubts around the strength of the economy which in turn affected job creation.” Further evidence of consumers reining in spending was delivered by the Society of Motor Manufacturers and Traders (SMMT) showing an 8.5 per cent drop in new car registrations in May to 186,265.
Business purchases rose 20.1 per cent, offset by a 14 per cent drop in private demand and 5.3 per cent fleet decline.
SMMT’s Mike Hawes said: “The election was always likely to give pause for thought and affect purchasing patterns short term. Remember that the market remains at a very high level.” Clothing stores are also finding it tough – today’s British Retail Consortium/KPMG sales monitor showed like-for-like May retail sales down 0.4 per cent on a year ago.
Non-food retail sales fell by 0.3 per cent over the three months to May, but a 3.2 per cent surge in food was the strongest quarterly since February 2012.
BRC’s Helen Dickinson said: “May’s sales slowdown is indicative of a longer term trend of a decline in consumer spending power. In non-food categories, which are predominantly capturing discretionary spending, retailers find themselves having to compete even harder.”