UK consumer spending dips in July, modest pay rises ahead
LONDON (Reuters) – British consumer spending dipped last month and few employers plan to offer bigger pay rises, according to economic surveys on Monday that suggest future growth is likely to remain modest.
Last week official figures showed growth sped up in the three months to June after an unusually snowy start to the year, but a lacklustre year-on-year growth rate prompted finance minister Philip Hammond to blame Brexit uncertainty.
Consumer spending figures from payment card company Visa suggest the third quarter got off to a soft start, with July spending down 0.9 percent in inflation-adjusted terms as only bars, restaurants and supermarkets gained from scorching weather and the World Cup.
“Household budgets are stretched,” Visa’s chief commercial officer Mark Antipof said, highlighting August’s rise in Bank of England interest rates and costs for families at the start of the new school year.
“Retailers had a difficult time in early 2018, and while there was some respite in May and June, July’s fall in spending is concerning,” he added.
Department store chain House of Fraser sought protection from creditors last week, and figures on Monday from the British Retail Consortium trade body showed a 0.8 percent annual drop in the number of people visiting shops last month.
Visa’s figures contrast with those from Barclaycard last week, which showed a continuation of robust 5 percent spending growth in July, albeit unadjusted for inflation.
Economists polled by Reuters expect official retail sales data next week — which is adjusted for inflation and covers a narrower range of spending than Visa data — to show 3 percent sales growth.
British households have been squeezed by inflation running faster than pay growth for most of the time since they voted for Brexit in June 2016, which caused the pound to tumble, pushing up the cost of imported goods.
The Bank of England slightly scaled back its forecasts for pay growth earlier this month, though outgoing Monetary Policy Committee member Ian McCafferty said pay growth might approach 4 percent next year, a rate not seen since the financial crisis.
However, human resources staff at major companies do not expect basic pay rates to be raised at anything near this rate over the coming year, according to a quarterly survey by the Chartered Institute of Personnel and Development (CIPD).
Median pay deals over the next year are expected to hold at 2 percent, where they have been since late 2017, according to the poll of 2,001 senior HR staff.
“Downward pressure of persistently weak productivity growth is dominating any upward pressure on pay from labour and skills shortages,” CIPD labour market analyst Gerwyn Davies said.
There was a slight shift upwards in the mean pay award, to 2.2 percent from 2.1 percent.
Official data due on Tuesday is forecast to show 2.5 percent annual wage growth for the three months to June.