ECONOMIC OUTLOOK
SPENDING by households weakened in May as rising inflation and political uncertainty appeared to take their toll.
Spending in May was up by 2.85% compared to 12 months earlier, the weakest rate of growth since last July, according to data from Barclaycard.
In a British Retail Consortium (BRC) survey, UK retail sales were down by 0.4% compared to 12 months earlier. On a total basis, sales rose by 0.2% in May compared to growth of 1.4% in May 2016. The current figure is below longer-term averages and again highlights a worrying trend.
Business activity in the services sector unexpectedly weakened in May, according to IHS Markit’s monthly survey. Its purchasing managers index (PMI) fell to 53.8 from 55.8 in April.
Manufacturing activity also slowed. The IHS Markit/CIPs PMI came in at 56.7, down from a three-year high of 57.3 in April. However, the construction sector PMI unexpectedly rose to 56 from 53.1 in April.
Markit’s composite index for the UK fell to a three-month low of 54.5 in May, but it remains consistent with quarterly GDP growth of 0.5%.
Economists are generally expecting growth for the second quarter to pick up after a rise of just 0.2% in the first quarter.
Meanwhile car sales were 8.5% lower in May compared to the same month a year ago, led by a 20% drop in sales of diesel vehicles. In total, 186,000 new cars were registered in the month.
House prices also fell for the third month in a row in May, with price growth over the past year just 2.1%, according to Nationwide. The lender’s figures are the latest sign of a slowdown in the housing market.
The Bank of England also published figures showing fewer mortgage approvals in April, with less than 65,000 loans approved for home purchases and remortgaging also down.
But credit card borrowing grew at its fastest pace in 11 years in April. The outstanding amount borrowed on credit cards hit £68.1bn, an increase of 9.7% on the previous year and the fastest growth since before the financial crisis.
Economists said borrowing was now acting as a cushion for households hit by higher prices in shops.
Martin Beck, senior economic adviser to the EY Item Club, said: “In the short term at least, that households are able and willing to continue borrowing to fund consumption should at least help to mitigate headwinds from rising inflation and subdued pay rises.”
And a closely-watched survey by GfK showed consumer confidence improved in May. While the GfK index remains in negative territory at -5, this was better than -7 the previous month.
However, survey respondents remained cautious about the potential impact of economic uncertainty, which they said was acting as a brake on client spending.