Consumer spending has fallen annually for the first time in nearly four years, in signs that more households are tightening their belts amid rising prices and stalling wage growth. Mortgage approvals and household credit growth both slowed in May, adding to the picture of the consumer beginning to flag in the face of rising inflation and political uncertainty related to Brexit.
Inflation has added the equivalent of six extra shops to the average household’s annual grocery bill as supermarkets saw their highest sales growth in five years. British consumers are putting more purchases on credit cards and are saving less than at any time on record.
Rising inflation is becoming a concern for businesses, and inflation is expected to peak at 3.4% this year. This is well above the Bank of England’s 2% target. The official inflation rate currently stands at 2.9%, up from 1.8% at the start of the year.
Amongst all of this, business confidence has rebounded since the Brexit vote, boosting the UK’s growth forecast for 2017, according to two separate surveys.
The British Chambers of Commerce has upgraded its growth forecast for the UK economy in 2017 from 1.4% to 1.5%. The forecast was upgraded due to the positive impact of the weaker pound on British businesses, which has made it easier for them to sell their goods abroad.
Lloyd’s Bank said business confidence has risen significantly since the start of the year and is now at an 18-month high. Its confidence index, which surveys 1,500 businesses on their expectations for sales, orders and profits over the next six months, found that 24 percent expect business to improve in the second half of the year. This is up from 12 percent recorded last year, just before the Brexit vote.