New data has found UK consumers have reduced summer spending due to poor weather and a cost-of-living crisis.
This is due to challenges for the Bank of England ahead of its interest rate decision on Thursday, August 1.
Data from the British Retail Consortium (BRC) revealed clothing and footwear prices fell for the seventh consecutive month in July, reflecting weak consumer demand.
The trend, combined with separate figures from the Bank of England, showed a slump in credit-card borrowing in June, as poor weather and cost concerns deterred spending.
The financial markets are closely watching the Bank of England, which is poised to decide whether to cut interest rates for the first time since the COVID-19 pandemic.
The headline inflation dropped to the government’s two percent target for two consecutive months.
Some city economists speculate the Bank’s monetary policy committee may vote to lower interest rates from the current 5.25 percent.
“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”
The Bank’s decision will depend on slowing price growth in the services sector and a cooling labor market, which are crucial for maintaining inflation near two percent.
The BRC reported annual shop price inflation remained at 0.2 percent in July, the lowest rate since October 2021, indicating subdued consumer activity.
Non-food price deflation continued at 0.9 percent as retailers cut prices to attract cautious consumers.
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Helen Dickinson, CEO of the BRC, said: “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.”
The Bank of England’s data also showed a decline in net consumer credit borrowing from £1.5 billion in May to £1.2 billion in June, falling short of economists’ expectations.
Karim Haji, global and UK head of financial services at KPMG, said that despite lower inflation, households are not feeling financially better off, with wage growth slowing in recent months.
Retailers remain hopeful for a spending rebound, citing a 4.8 percent increase in footfall at shopping destinations following the start of the school summer holidays.
