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Consumer Spending

The latest figures from the Office for National Statistics for the month of May show that the slowdown in consumer spending is continuing. The volume of retail sales rose by only 0.1% for the month, a significant reduction from the half a percent rise seen in for the previous month.

It should be noted that this is a slowdown in growth, and not a recession in sales, however it is still not what retailers want to hear. Consumer spending is a very important factor in the stability and indeed growth of the UK economy, and as such it carries a great deal of weight with the Bank of England’s monetary policy committee, who are responsible for setting the base rate of interest.

The base rate has remained unchanged at 4.75% for the tenth consecutive month now, and there is mounting pressure from the retail sector for a cut to take place in order to stimulate sales. During last year’s exceptionally strong growth in retail sales the Bank expressed concerns that the growth was unsustainable, which could indicate that they are viewing this cooling of the retail sector as a good thing, for the time being at least. Many experts believe that the Bank will wait to see if spending on the high street increases by itself over the coming few months before any decision on a possible cut in rates is made.

Interestingly, it was retailers in the household goods sector that saw the lowest growth in sales, indicating that the housing market is too slowing down, with less people moving into new properties and buying goods with which to furnish them.

All of these figures are being carefully considered by the monetary policy committee, as it is them who will have to interpret them and decide based upon these and other factors what to set the rates at. A cut would stimulate sales and even buoy the housing market, however the Bank is likely to be cautious about doing this as levels of personal debt are already very high, however a strong economy relies heavily on healthy consumer spending and so a cut in rates may well be just around the corner.