Britain is booming – but shoppers can’t quite believe it
Consumers seek bargains as spending reveals doubts behind recovery
NERVOUS shoppers are still counting their pennies despite recent positive news on the economy.
Householders are preferring to invest in DIY projects, or buy goods if they are discounted, as data complied exclusively for The Mail on Sunday on British habits shows ongoing scepticism over the country’s boom.
Consumer spending weakened last month, raising fears that a consistent recovery has yet to take root and supporting the decision by the Bank of England to keep interest rates on hold for another year.
Consumer spending rose by just 2 per cent in February compared to the same month in 2013, according to data from Barclaycard which covers half of all spending on debit and credit cards. By contrast, January saw 4 per cent growth.
The news follows a decision last week by the Bank of England’s Monetary Policy Committee to maintain interest rates at 0.5 per cent – exactly five years after they were first cut to their all-time low.
Barclaycard described the 2 per cent rise in spending as ‘muted’.
‘There was a sense last year that consumers became a little more optimistic and started drawing down on their savings. But there is a limit to how much that can happen. At some point there has to be an increase in real wages if the consumer spending is going to see a marked recovery,’ said John Hawksworth, chief UK economist at PwC.
Independent City analyst Nick Bubb said the evidence for a recovery was mixed and that some headline indicators may be concealing pain among consumers. He added: ‘People are pretty bullish about the housing market. But they are nervous about interest rate rises and seem to be acting accordingly.
‘You might argue that a lot of jobs have been created over recent months, but they are pretty low paid despite what politicians say.’
Last week, the Department for Business issued a report on the retail sector that called for urgent help to save town centre shops.
It called for a wholesale review of the business rates system, which it said was ‘not fit for purpose’ and threatened the survival of high streets. The figures revealed that spending in stores in February was unchanged on the same month the year before, with the overall increase accounted for by an 8.6 per cent rise in online spending.
Meanwhile, the evidence suggests that consumers are willing to spend, but are targeting their spending to make sure their money makes the biggest impact. Home i mprovement sales increased 11.3 per cent as consumers spruced up their houses in preparation for a sale.
Clothing and electrical sales have also remained strong since Christmas amid heavy discounting by some retailers.
Spending in restaurants increased 10.8 per cent, but shoppers continued to spend less at supermarkets, where sales fell 0.8 per cent, and on petrol, with spending showing a marked decline of 6 per cent. The Barclaycard data is the most accurate data on monthly spending – and the most rapidly available.
It shows that consumers are continuing to cut back where they can and hold off to save for special events and one-off purchases.
Experts said January’s rise was flattered by slower spending in the same month in 2013, which was hampered by bad weather as snow kept many shoppers indoors.
Barclaycard blamed the l ow growth on ‘smaller real pay packets’, adding that it was crucial to monitor how that was affecting households as the year progressed.
Val Soranno Keating, chief executive of Barclaycard, said: ‘The positive noises on the economy and unemployment have yet to drive significant increases in consumer spend. While consumers feel more confident than they have for several years, the upswing in spending growth that we saw in the middle of last year has slowed as pay packets are not matching the performance of the wider economy. Until we see stronger wage growth, spending will likely continue to be muted.’
The data also showed that average transaction values fell 3.9 per cent compared to the year before, as shoppers sought discounts.
One retail source said: ‘There has been some heavier discounting at some shops, but the overall picture has been mixed.
‘There is definitely a move by some retailers to try to resist discounting where they can after the frenzy before Christmas. But that is not always possible.’
Speculation has been mounting over when the Monetary Policy Committee might call for a rate rise, but signals across the economy remain confused and for most people real wages continue to decline.
Bank of England Governor Mark Carney is increasingly caught between muted consumer spending and a heated housing market, particularly in London and the South-East. He insisted this week that rate rises would be ‘gradual’ and that he would ‘not take risks with the recovery’.
Chief economist Spencer Dale said that a rate rise may not come until April next year – reaching 2 per cent by late 2016.