Consumer spending remains ‘cautious’ as retail sales rise by 0.3pc

SHOPPERS bought more than expected in July, stocking up on extra food and household goods to give the economy a lift.

But families are also suffering from the recent surge in prices, which forced them to spend more on clothes, even as they brought home fewer garments.

Overall retail sales climbed by 0.3pc on the month in July, the Office for National Statistics (ONS) said, led by a 1.5pc rise in food sales. That beat the 0.2pc rise forecast by economists, indicating consumers will offer steady but not strong support to the wider economy. Compared with July last year the volume of sales rose by 1.3pc.

“The second consecutive month of sales growth, despite elevated inflation, underlines the resilience of the UK consumer in the face of a modest real income squeeze,” said Simon Wells, chief European economist at HSBC. “But the overall picture is still one of a moderation on the high street.”

Rising prices, largely caused by the fall in the pound pushing up import costs, mean shoppers had to spend a lot more to take home this small increase in goods. While the volume of sales increased by 0.3pc on the month, the value of those transactions increased by 0.7pc. Similarly, on the year, the volume rose 1.3pc but the value went up 4.1pc. That is because shop prices rose by 2.8pc on the year, the ONS estimated.

However, those shop prices have edged downwards in each of the past two months, raising hopes that the recent spurt in inflation could be slowing. The shop price index now stands at 96.3, down from 97.1 in June and 97.3 in May. It is still up from a low of 93.7 at the start of 2016, showing inflation has kicked in since then.

The index measures prices from a base level of 100 in 2013, suggesting the cost of an average household’s shopping is still lower than four years ago. Analysts expect consumer price inflation to peak at about 3pc later this year and fall into 2018, relieving some strain.

“With wages failing to catch up to the rise in living costs and while uncertainty around Brexit remains, households are likely to stay more cautious,” said Yael Selfin, chief economist at KPMG. “July’s retail sales figures reveal slightly weaker consumer spending growth in the third quarter than earlier this year, but as inflationary pressures subside and wages gradually pick up, consumer spending could accelerate later next year.”