“As consumers gear up to spend more… there’s a brighter outlook for the coming months”
Last Tuesday, figures from the latest Barclays Consumer Spend Report revealed that consumer card spending fell to a three-year low in May. As households continue to feel the squeeze, overall spending grew by just 1.0% for the month, its lowest rise since February 2021.
Analysts lay the blame for lower discretionary purchases not only on cost-of-living concerns but also unseasonable levels of rainfall, which may have kept some shoppers off the high street. Sectors that performed especially poorly include takeaways and fast food, which experienced its first fall in the past four years. Meanwhile, supermarket spending growth also sank to its lowest point in two years.
On a brighter note, the report revealed that, as consumers feel more optimistic about the latest inflation figures, three in 10 now plan to spend more once the weather improves. Karen Johnson, Head of Retail at Barclays, struck a cheerful tone when commenting on the figures. She said, “As consumers gear up to spend more with better weather, and with the Euros, Wimbledon, and Taylor Swift’s ‘Eras Tour’ on the horizon, there’s a brighter outlook for the coming months.”
BCC says there is ‘life in the UK economy’
The UK economy is now forecast to grow faster than expected this year and next, according to upgraded figures from the British Chambers of Commerce (BCC) released last week. The BCC expects the economy to expand by 0.8% in 2024, above the 0.5% previously forecast. In 2025, the BCC estimates growth of 1.0%, raised from an earlier projection of 0.7%.
Despite the small upwards revisions for 2024 and 2025, longer-term prospects are not much improved, the BCC noted. Indeed, the forecast for 2026 remains unchanged at 1.0%, with the BCC pointing to ‘global headwinds remaining, interest rates falling slowly and only a gradual expansion in consumer spending’ as the main reasons.
Following a turbulent few years, acceleration in growth forecasts – however minor – is welcome. The revised figures follow better than expected economic performance at the start of 2024; having briefly fallen into a technical recession at the end of 2023, the UK economy is now on course for a slight recovery, analysts suggest.
Another strong month for UK services sector
More positive news came from the S&P Global UK Services PMI, which revealed last Wednesday that the UK services sector continued to perform solidly in May. Although some momentum had faded from the previous month, the index only slipped slightly from April’s 11-month high to settle at 52.9. This also represented the seventh consecutive month above the 50.0 neutral mark.
The release revealed service companies feeling ‘strongly optimistic’ about the outlook for 2024. Notably, input cost inflation fell to its lowest level since February 2021, prompting some analysts to wonder whether the Bank of England (BoE) might cut interest rates in the near term.
Commenting on the figures, Joe Hayes, Principal Economist at S&P Global Market Intelligence, said, “That’s now three months on the trot that selling price inflation in the services sector has eased. This will be very encouraging to the BoE’s Monetary Policy Committee and suggests the trajectory of services prices is moving in the right direction.”
Eurozone rate cut
Last week the European Central Bank (ECB) cut its main interest rate from 4% to 3.75%, following progress in successfully tackling inflation. Following Canada’s decision to reduce its official lending rate last week, ECB President Christine Lagarde said the inflation outlook had improved “markedly,” but cautioned inflation was likely to stay around the target level of 2% into 2025. She said, “We are not pre-committing to a particular rate path” but will keep interest rate policy “sufficiently restrictive” as required to bring inflation down.
UK election
On Friday night, a seven-party leaders’ debate took place, with Leader of the House of Commons, Conservative candidate Penny Mordaunt and Labour Deputy Leader Angela Rayner taking part on behalf of the Prime Minister and Sir Keir Starmer, respectively. Key issues debated included defence, immigration and tax. Earlier in the day the Prime Minister apologised for leaving D-Day 80th anniversary events early. The Liberal Democrats and Conservatives have released their manifestos, with Labour’s due on Thursday.
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All details are correct at time of writing (12 June 2024)
