Britain’s economy is showing mounting signs of strain from the rising cost of living, with retail sales recording a sharper-than-expected fall in March and service sector growth slowing at its fastest pace since the Omicron wave hit businesses late last year.
The Office for National Statistics said retail sales volumes in Great Britain dropped by 1.4% in March, following a 0.5% decline in February, as shoppers adjusted to higher prices. City economists had forecast a fall of 0.3%. The decline came before the full impact of April’s cost of living increases, which included a 54% rise in the household energy price cap and higher national insurance contributions.
Separate figures from S&P Global and the Chartered Institute of Procurement and Supply showed private sector growth had slowed to its weakest rate for three months, with high inflation and the war in Ukraine dampening demand. Service providers reported a considerable loss of momentum in April as they passed on higher raw material costs to consumers. Chris Williamson, chief business economist at S&P Global, said high prices and the rising cost of living were often cited as a principal cause of lower demand, with Covid, Brexit and transport delays also hurting exports.
Other ONS data revealed food spending fell for a fifth consecutive month, with particularly sharp declines at supermarkets, butchers and bakers. Spending at alcohol and tobacco stores dropped 11.3%, while fuel sales fell 3.8% as record petrol and diesel prices prompted households to cut back on non-essential travel. Online sales as a proportion of total retail fell to 26%, the lowest since February 2020, as consumers returned to the high street and reduced discretionary purchases.
Inflation reached 7% in March, its highest since 1992, and is expected to rise further after the record increase in domestic energy bills. The Bank of England has warned the measure could hit 10% later this year, the highest level since the early 1980s. After the data release, the pound fell 1.3% to just below $1.29, its weakest since late 2020.
