Consumer spending continues to fall: what do we do?
Britain’s high streets are still busy with people clutching shopping bags, and queues in shops seem to be as long as ever, but while it might not be obvious at […]
Britain’s high streets are still busy with people clutching shopping bags, and queues in shops seem to be as long as ever, but while it might not be obvious at a quick glance around the supermarket, the reality is that consumer spending has fallen consistently over the past few months.
Painting a pretty sad picture, sales volumes in a range of sectors, including retail, housebuilding, and cars, have dropped to their slowest rate in four years: the last time that a fall like this occurred over several successive months was in 2013.
Spending has fallen especially on discretionary goods and services, the sales of which were generally healthy in the last year. Transport and communication and clothing and footwear, for example, were subject to the most drastic drops at 6.1% and 5.2% respectively.
Why the decline?
Some argue that the aforementioned shopping bags are filled with cheaper, generic items rather than more expensive, branded items, as people are increasingly spending their money in better value, discount retailers, and are more prepared to shop around for a bargain.
Although it was reported that April this year saw an eight-month high in sales, it is generally accepted that this was an anomaly in the longer-term spending pattern. The Office for national Statistics believes that this was attributable to a sharp increase in inflation.
Irrespective of this, the fall in consumer spending was predicted by experts earlier this year, as higher import costs and inflation rates were expected to push consumers to stretch their reduced disposable incomes further. And those predictions were correct; the resultant higher prices, alongside static wages and slowing employment growth, have forced consumers to rein in their spending to an even greater extent than anticipated.
The trend is expected to continue at a rate of 0.8% per month, as the labour market continues to lose its strength and as the growth in wages seems set to remain stalled. Higher rates of unemployment are also expected – over 6% by the end of 2018, up from approximately 4.8% at the end of last year – and coupled with higher prices, it is speculated that wallets and purses will remain closed.
What happens next?
The consequence of this is that the government will simply have to accept that economic growth will be driven less by consumer spending in the coming years and more by trade. Although, a reliance on trade is left somewhat precarious given the unpredictability of the future of the economy and the impacts of the Brexit talks, the latter of which is also likely to negatively affect consumer spending further.
Yet, despite slowing consumer spending, growth is still higher than was predicted in 2016. Moreover, while spending on discretionary goods and services has suffered, there were some increases in hospitality; most probably because the low value of sterling – following last year’s decision to leave the EU – has made the UK an attractive holiday destination for foreigners. Let’s hope the weather stays good to attract even more!