Good news for grocery multiples as an increase in food prices boosted Xmas profits but bad news for non food retailers as households felt the squeeze on incomes and opted to spend on food rather than clothes and gifts.
UK retail sales fell year on year for the first time since 2013 as consumers tightened their belts even ahead of the recent interest rate rise. Wage increases running at 2% with inflation at 3% is sure to squeeze the spending power of any household.The retail sector is praying that consumers are only holding back now to enable them to spend again on Xmas gifts.
Real incomes fell by 2% in early 2017 compared to just a year before…the steepest fall since 2011 according to the ONS. Slow wage growth and rising prices continue to combine to squeeze disposable incomes. Whilst wages stagnate with many public sector workers trapped on 1% wage increases, prices continue to escalate as the falling pound makes imported goods more expensive to retailers who inevitably pass these costs through to the consumer. Yet consumers still appear unaware of the pending gloom as they rack up debt and continue spending. Consumer debt levels are reported to be approaching those reached on the eve of the 2008 financial crisis with savings at an all time low as consumers use savings to fund their shopping sprees.
The highest inflation rate since 2013 has been reported at 2.9% up form 2.7% in April.Household spending is being squeezed and fell for the first time in 4 years.
Retail sales and online sales both suffered falls during May as consumers cut back spending on goods and instead turned their spending to eating out and entertainment.