Given the increase in foot traffic at UK shopping sites following the start of the school summer holidays last week, retailers are optimistic that spending may pick up.
Figures reveal that UK consumers have reduced their summer spending due to the effects of bad weather and the rising cost of living, highlighting the difficulty facing the Bank of England ahead of its interest rate decision on Thursday.
According to data from the British Retail Consortium (BRC), prices for apparel and footwear decreased in July for the seventh consecutive month as sluggish demand continued, indicating a decline in consumer spending over the summer.
According to separate data from the Bank of England, June saw a decline in credit card borrowing as a result of families’ reduced expenditure due to unfavourable weather conditions for the time of year and worries about rising living expenses.
The financial markets anticipate that the Bank’s interest rate decision on Thursday will be closely watched as decision-makers debate whether to lower borrowing costs for the first since the Covid epidemic. This is why the numbers were released.
According to City experts, tight voting to lower interest rates from the present level of 5.25% is possible if headline inflation falls to the government’s 2% target for two consecutive months.
The Bank has stated that its choice would be based on whether the price rise in the economy’s service sector is slowing and whether the employment market in Britain is cooling to levels that are consistent with maintaining inflation close to 2%.
Based on household spending restraint and a muted consumer appetite, the BRC data indicates that annual shop price inflation remained stable at 0.2% in July. This was the lowest rate since October 2021 and below the three-month average rate of 0.3%.
Deflation in non-food prices, or the decline in prices relative to a year ago, persisted at 0.9% in June, slightly less than 1%, as merchants slashed their prices in an effort to entice hesitant customers.
“Holidaymakers could pick up bargain summer wear and summer reads as clothing and footwear prices fell for the seventh consecutive month amidst persistent weak demand, and the prices of books fell,” stated Helen Dickinson, chief executive of the BRC.
As per the data from the Bank, net consumer credit borrowing decreased from £1.5 billion in May to £1.2 billion in June, falling short of the predictions of City experts for a faster growth rate as households refrained from taking out loans to cover their expenses.
Karim Haji, the head of financial services for KPMG in the UK and globally, stated that the data indicated that clients had not yet experienced the benefits of the recent acceleration of economic development and decline in inflation.
“What is clear is that despite two straight months of inflation remaining on target, households aren’t necessarily feeling better off for it,” he stated. “Indeed, wage growth has slowed in recent months, which may go some way to explaining this.”
However, given the increase in foot traffic at UK shopping sites following the start of the school summer holidays last week, retailers are optimistic that spending may pick up. Foot traffic increased by 4.8% across all retail locations from the previous week, according to data source MRI Software. This gain was driven by a 6.9% surge in shopping center activity, a 4.4% increase in high street visits, and a 3.3% increase in retail parks.
Additionally, according to the Bank’s most recent snapshot, net mortgage approvals – a measure of future borrowing levels – remained essentially unchanged in June from May, suggesting that the real estate market was hovering before Thursday’s rate announcement and the general election.
The UK housing market seems to be waiting for the first bank rate decrease, but stability is healthy, according to Anthony Codling, European housebuilding analyst at RBC Capital Markets. Though the first cut is more likely to occur in September, there is a slim probability that it may happen on Thursday. A pickup in the housing market as mortgage rates begin to decline is anticipated.