British companies still investing despite consumer spending fears says Bank of England survey

 
Jasper Jolly
Tesco's Customers Shop At Kensington
Higher food and drink prices are pushing up inflation, firms reported (Source: Getty)

British business investment intentions have picked up, according to a survey by the Bank of England, despite weakening retail sales casting a pall over consumer prospects.

The increase in investment intentions reflects steady demand growth and less uncertainty around economic prospects, the Bank reported, based on surveys of 700 companies by its regional agents.

However, ahead of the trigger of Article 50 and the crucial negotiations with the EU, the report also pointed to the “lack of visibility” around the future trading relationship, which was holding off some longer-term investments.

Read more: Will rising inflation call time on the economy’s post-Brexit vote strength?

Prime Minister Theresa May will officially start the Brexit process on Wednesday, but the Bank reports relatively little trepidation, with “moderate rates of activity growth” throughout the companies surveyed.

The report found the response of the British consumer to price rises was the biggest source of concern for businesses, as retail sales volumes dipped for the first time since July 2016.

The strength of consumer spending since the EU referendum wrong-footed the Bank, forcing it into multiple growth upgrades. However, the rise in prices could weigh on consumer spending.

With the fall in sterling causing inflation to rise to 2.3 per cent last month, firms are expecting a slowdown, with estimated sales growth dipping from approximately 3.5 per cent to below two per cent in the next 12 months.

Read more: Sterling rises as inflation smashes Bank of England's two per cent target

Around two-thirds of the companies the Bank surveyed pointed to the decline in real disposable incomes as the biggest factor in the expected dip in demand from consumers. The failure of wages to keep pace with inflation means the average UK consumer has less to spend.

Firms across the board confirmed the price increases reported by the Office for National Statistics, although there were some signs of supermarkets holding prices down as they try to retain market share.

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