ECONOMIC OUTLOOK

CONSUMER spending is continuing to fall, suppressed by squeezed household incomes and uncertainty about the economy. The data, from Visa/Markit, showed consumer spending dropped 0.8% in July compared to 12 months earlier. The drop follows falls in May and June.

Transport and communication was worst hit, down 6.1% for a second month. Clothing and footwear spending fell by 5.2% and household goods suffered a 4.0% fall.

It was the first time spending had contracted for three consecutive months since 2013.

House prices enjoyed a strong month-on-month rise in July, up 0.4% according to Halifax and 0.3% according to Nationwide’s research.

But the year-on-year rate of growth continues to fall: to 2.1% (Halifax) or 2.9% (Nationwide).

The average price of a home is now £219,266 according to Halifax.

Howard Archer at EY Item Club said: “Housing market activity is currently lacklustre and stuttering amid weakened consumer fundamentals.”

Meanwhile, the Bank of England (BoE) cut its growth forecast for the UK economy and announced it was holding interest rates at 0.25%, with only two members of its Monetary Policy Committee voting for a rise. The growth forecast was reduced from 1.9% to 1.7% for 2017, and from 1.7% to 1.6% for 2018.

Governor Mark Carney said that persistent uncertainty about the UK’s future relationship with the EU following the Brexit vote was holding back business investment and consumer spending. As a result, the “speed limit” of the economy had been reduced.

And while interest rates remain at a record low of 0.25% for now, Carney warned they were likely to increase sooner than the market was expecting. He indicated that two quarter-point increases in the next three years would not be sufficient.

Some investors now expect a quarter-point rise as soon as November this year.

The BoE also said it expects inflation to peak around 3% later this year, up from 2.6% currently. The pound fell in value, hitting a 10-month low against the euro - a blow to holidaymakers.

Separately, BoE deputy governor Ben Broadbent said that the UK is now better placed to withstand its first rate rise since the financial crisis because the economy is still growing, unemployment is at a record low, and wages are forecast to rise.

Also last week, purchasing managers indexes (PMIs) for the manufacturing, services and construction sectors presented a mixed picture of the economy.

UK manufacturing activity rebounded in July thanks mainly to growth of new export orders, according to Markit’s manufacturing PMI. The index rose to 55.1 from 54.2 in June. But the construction PMI showed activity has dropped to an 11-month low due to reduced commercial building,