Rising Cost Of Living Sparks Biggest Drop In Retail Sales For Seven Years

Rising Cost Of Living Sparks Biggest Drop In Retail Sales For Seven Years

Retail sales have recorded their biggest fall for seven years in the three months to March as rising living costs ate into household spending.

The Office for National Statistics (ONS) said sales fell by 1.4% over the three-month period, while also sinking well below expectations to drop by 1.8% on the month to March.

The drop is expected to trim 0.1 percentage points off UK economic growth in the first quarter of this year, according to the statistics agency.

ONS senior statistician Kate Davies said: "Today's retail sales figures show a decline on the month and on the three months to March, which coincides with quarter one in 2017.

"This is the first time we've seen a quarterly decline since 2013, and it seems to be a consequence of price increases across a whole range of sectors."

Sterling edged down against the US dollar to 1.28 following the announcement, and was also marginally lower versus the euro at 1.194.

The pound's slump since the Brexit vote has ratcheted up everyday prices as manufacturers pass down soaring costs to consumers and imported goods become more expensive.

The ONS said average store prices recorded their biggest growth since March 2012, jumping 3.3% on the year, while average petrol prices rose by 16.4% over the period.

Andrew Sentance, PwC's senior economic adviser, said the post-Brexit surge in consumer spending "has come to an abrupt end".

"Inflation has caught up with pay growth, so real incomes of workers are no longer rising. Employment growth has also slowed sharply over the past six months, even though unemployment remains historically low.

"The recent period of strong consumer spending growth also relied on households running down their saving and increasing borrowing.

"This is the clearest indication yet that the expected slowdown in the UK economy has begun, and we should expect to see this confirmed in other economic data over the next few months."

Inflation held steady at 2.3% in March as rising price tags on food and clothing were offset by a drop in the cost of flights and fuel, according to separate ONS figures released earlier this month.

The reading was the joint highest since September 2013, keeping it above the Bank of England's 2% target for inflation.

Consumers have been plundering their nest eggs, or spending more on credit, to maintain their standard of living in the face of rising inflation.

The pattern has sounded alarm bells at the Bank of England, with the Financial Policy Committee warning that a rapid rise in consumer debt fuelled by interest-free credit cards could pose a risk to the UK financial system.

Meanwhile, the tough trading conditions for retailers was underscored on Thursday when Debenhams announced plans to close 11 warehouses and put up to 10 stores under review. Marks & Spencer also said it would close six stores.

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