BUSINESS

Fears over household finances grow as inflation leaps on sterling woe 23 Modest rise in retail sales in tough climate

FEARS over under-pressure household finances intensified yesterday after official figures showed a sharper-than-expected leap in annual UK inflation, with Scottish Chambers of Commerce urging the Bank of England to hold benchmark interest rates.

Annual UK consumer prices index inflation jumped from 2.6 per cent in July to 2.9 per cent in August, figures published yesterday by the Office for National Statistics showed. Economists had forecast annual inflation of 2.8 per cent for August, and the latest rate remains well above the two per cent target of the Bank, which will announce its next decision on rates tomorrow.

Clothing and footwear prices in August were up by a record 4.6 per cent on a year earlier, following a 2.4 per cent monthon-month jump.

The ONS said: “The rise in inflation in this category may reflect changes in the exchange rate impacting on the cost of imported clothing.”

The pound’s tumble in the wake of the Brexit vote has made imports much more expensive for UK consumers.

Petrol prices rose 1.8p-a-litre on average between July and August. This contrasted with a 1.8p-a-litre fall between the same two months of last year.

Liz Cameron, chief executive of Scottish Chambers, noted the “import-intensive nature of clothing and footwear”, with exchange rate pressure through the supply chain “driving the increase” in prices.

Ms Cameron said: “Prices at the factory gate are increasing and with CPI inflation continuing to outpace pay increases, this will raise some concerns for businesses when it comes to the availability of consumer spending.

“We are hearing early signs from members, although not widespread, of increasing costs being passed down the supply chain and potentially to the end consumer.”

She added: “With this in mind, and with only modest GDP (gross domestic product) growth, the Bank of England should hold steady on raising interest rates.”

Anna Leach, head of economic intelligence at the Confederation of British Industry, said the inflation figures “highlight the pressure on consumers from rising prices against the backdrop of sluggish wage growth”.

Howard Archer, chief economic adviser to the EY ITEM Club think-tank, said: “Higher inflation in August is bad news for both the Bank of England and consumers.”

Annual inflation on the old all-items retail prices index measure rose from 3.6 per cent in July to 3.9 per cent in August. THE value of Scottish retail sales in August was up by one per cent on the same month of last year, the latest industry figures show, but the non-food category remained in decline.

Publishing its latest monthly survey, the Scottish Retail Consortium noted the overall year-onyear rise in sales value had been achieved against a weak August 2016. Retail sales value in August 2016 was down by 2.2 per cent on a year earlier.

The SRC flagged pressure on household incomes.

The year-on-year rise in retail sales value in Scotland in August was adrift of a corresponding 2.4 per cent increase in the UK as a whole reported last week by the British Retail Consortium.

Food sales value in Scotland last month was up 4.1 per cent on August 2016, the SRC figures show.

And non-food sales value in August was down by 1.5 per cent on the same month of last year, albeit this was a less-steep drop than the 2.7 per cent average decline over the latest 12 months.

Ewan MacDonaldRussell, head of policy and external affairs at the SRC, said: “Food continued to perform well with a year-onyear increase of 4.1 per cent, albeit that continues to be partially driven by food price inflation of 1.3 per cent. The non-food sales decline of 1.5 percent was an improvement over the 12-month average of -2.7 per cent, with household textiles and back-to-school ranges performing well.”

However, he added: “It’s important to note both food and non-food are being compared to a very poor August in 2016. Therefore, the apparent spike in performance may well be a statistical quirk rather than evidence of sustained sales improvement.”

Craig Cavin, head of retail in Scotland at accountant and survey sponsor KPMG, said: “Despite home furnishings, TVs and fridges all selling well as consumers prepare their houses for the longer autumnal evenings, other non-food remained in decline.”