UK economy fears amid low consumer spending

RISING inflation and slow wage growth are forcing shoppers to keep their hands in their pockets, sparking fears that low consumer spending will hamper the UK’s economic recovery.

Retail administrations of recent months such as Blockbuster and Jessops have hit the high street badly. Picture: Ian Georgeson

Sales volumes in the past month fell for the first time since August and are expected to drop further next month, according to the CBI’s monthly distributive trades survey.

Analysts had expected sales volumes to rise during April, stoking concerns of a fresh slowdown in consumer confidence.

Economists will keep a wary eye on this morning’s gross domestic product (GDP) figures, which could show that the UK economy has fallen into a triple-dip recession.

Barry Williams, Asda’s chief merchandising officer for food and chair of the CBI distributive trades survey panel, said: “Retailers were frustrated this month by the on-going stagnation in sales growth.

“This may be explained in part by the unseasonal weather we suffered, but there is no doubt that high street conditions are tricky, with consumers lacking the confidence to go out and spend, as they still feel the pinch in their pocket.”

Chris Williamson, chief economist at Markit, pointed out: “The renewed weakness of retail sales is no surprise given the financial pressures facing households at the moment.

“Inflation is running at 2.8 per cent while regular pay is growing by just 1 per cent per annum – the lowest on record. Households remain all-too aware of the fragility of the economy and the lack of recovery.

“Unfortunately, the CBI survey suggests that there is a risk that the consumer could once again act as a drag on the economy in the second quarter.”

IHS Global Insight chief UK economist Howard Archer added: “The disappointing April CBI survey intensifies pressure on the Bank of England to come up with more quantitative easing and sooner rather than later, in addition to the extension just announced to the Funding for Lending Scheme.”

The downbeat figures from the CBI came ahead of data released this morning from the British Retail Consortium (BRC), which revealed that one in five shops plans to lay-off staff in the next three months.

Helen Dickinson, the BRC’s director-general, said: “The retail administrations of recent months have also filtered through to the figures, pushing sector redundancy rates up to the highest level since the monitor began at the height of the recession in October 2008.”

The number of people employed in the retail sector rose by 1.8 per cent over the past three months, while the number of shops in the UK increased by 1.4 per cent, with all the growth coming from the food sector.

Douglas McWilliams, executive chairman of the Centre for Economics & Business Research, believes there is a “40 per cent” chance that the UK’s GDP contracted during the opening three months of the year, pushing the economy back into recession.

Yet McWilliams warned the figures give a “misleading signal” because they do not include data from businesses being created in the internet and media sectors.