Rising cost of living sparks major drop in retail sales

Inflation has caught up with pay growth and real incomes are not rising
Inflation has caught up with pay growth and real incomes are not rising

Retail sales have recorded their biggest fall for seven years in the three months to March as rising living costs ate into household spending.

The Office for National Statistics (ONS) said sales fell by 1.4% over the three-month period, while also sinking well below expectations to drop by 1.8% on the month to March.

The drop is expected to trim 0.1 percentage points off UK economic growth in the first quarter of this year, according to the statistics agency.

ONS senior statistician Kate Davies said: “Today’s retail sales figures show a decline on the month and on the three months to March, which coincides with quarter one in 2017.

“This is the first time we’ve seen a quarterly decline since 2013, and it seems to be a consequence of price increases across a whole range of sectors.”

Sterling edged down against the US dollar to 1.28 following the announcement, and was also marginally lower versus the euro at 1.194.

The pound’s slump since the Brexit vote has ratcheted up everyday prices as manufacturers pass down soaring costs to consumers and imported goods become more expensive.

The ONS said average store prices recorded their biggest growth since March 2012, jumping 3.3% on the year, while average petrol prices rose by 16.4% over the period.

Andrew Sentance, PwC’s senior economic adviser, said the post-Brexit surge in consumer spending “has come to an abrupt end”.

“Inflation has caught up with pay growth, so real incomes of workers are no longer rising. Employment growth has also slowed sharply over the past six months, even though unemployment remains historically low.