Reuters, London :
British shoppers unexpectedly cut back on their spending in January as last year’s Brexit vote pushed up inflation, official data showed on Friday, the strongest sign to date that the country’s economy is heading for a slowdown.
Consumers were barely fazed last year by June’s decision to leave the European Union. But they are turning more cautious with prices rising quickly in response to the post-referendum slump in the value of the pound and higher oil prices.
Official data on Friday showed retail sales volumes fell by 0.3 per cent month-on-month in January, much weaker than economists’ forecasts in a Reuters poll for a 0.9 per cent increase. No forecaster had expected a fall.
‘The theme for most forecasters this year is that consumer spending is going to suffer as higher prices erode real incomes. But I don’t think anyone would have expected the pace of spending to have suffered so much so soon,’ Alan Clarke, an economist with Scotiabank, said.
The pound fell sharply and was down half a per cent against the US dollar after the data. British government bond prices, which like the currency are sensitive to expectations about future Bank of England interest rate decisions, rose.
Friday’s data underscores why the Bank has signalled it is in no rush to raise record-low rates as it expects rising inflation will hurt the spending power of households.
The Office of National Statistics said retail prices rose 1.9 per cent in January compared with a year ago, the most since July 2013 and up sharply from December’s 0.9 per cent. The rise in motor fuel prices, up 16.1 per cent, was the biggest since September 2011.
As well as weaker sterling, fuel prices have been pushed up by an increase in global oil prices.
Monthly retail sales figures can be volatile but over the three months to January sales were also down, falling by 0.4 per cent in volume terms, their weakest performance since November 2013.
‘In the three months to January 2017, retail sales saw the first signs of a fall in the underlying trend since December 2013,’ ONS statistician Kate Davies said. ‘The evidence suggests that increased prices in fuel and food are significant factors in this slowdown.’
Compared with January 2015, sales rose 1.5 per cent, their weakest performance since November 2013.
