Retail sales fell at the fastest quarterly rate since 2010 in March, raising fears the consumer spending boom which has driven British growth in the last three quarters may be under threat.
Sales fell by 1.4 per cent in the first three months of the year. The last time sales fell by more in a quarter came in 2010, when sales fell faster than usual due to the end of temporarily lower value-added tax (VAT).
That apart, the first quarter of 2017 saw the biggest decline since the financial crisis.
Here’s what economists have made of the retail sales fall.
Oliver Kolodseike, senior economist at the Centre for Economics and Business Research, said: “The figures highlight the difficult environment both retailers and consumers are currently facing. Wage growth is stagnant at best despite the unemployment rate standing at its lowest level in over four decades and rising inflation is squeezing real incomes.”
The fall in sales suggests there could be more weakness ahead for the UK economy, said Andrew Sentance, senior economic adviser at PwC.
He said: "The recent period of strong consumer spending growth also relied on households running down their saving and increasing borrowing.
“That pattern of behaviour is not sustainable in the longer term and at some point consumers will start to rein in borrowing and rebuild their savings.”
As well as being a bellwether for consumer spending habits, the retail sector could also act as a drag on headline growth figures, says Chris Williamson, chief business economist at IHS Markit.
He said: “The March sales downturn means the retail sector acted as a drag on the economy in the first quarter (shaving 0.1 per cent off GDP growth, according to the ONS).”
He added: “The latest survey data showed the amount of cash that households had available to spend fell in April to the greatest extent for two and a half years, blamed on rising living costs as inflation accelerates, as well as stubbornly subdued pay growth.”
Consumers might retrench in response, with a further decline in non-essential purchases possible, said Victoria Clarke, an economist at Investec.
She said: “As households are faced with a squeeze from rising prices, they tend to focus their income on the more essential items of spending and we are already seeing signs of this.
“Indeed, in the recent BRC report non-food retail sales values were markedly weaker than food sales, falling by 0.8 per cent on a year earlier in the first quarter, whilst food sales were 1.2 per cent higher over the same period.”
The figures show the retail sector could struggle as inflation increases.
Ian Gilmartin, head of retail and wholesale at Barclays, said: “A difficult month for retailers in March, with the impact of price rises taking a bite out of consumers’ willingness to part with their cash.”
However, he said: “It’s important not to overstate the severity of the figures, as the sector was still able to post monthly year-on-year growth and there were other bright spots, with clothing retailers posting good results boosted by a milder than usual March. The late Easter this year may also have slightly disrupted sales patterns, but the overall trend does suggest that it’s going to be a tricky time for the wider industry as we move towards the summer season.”