Consumers more wary as rising prices threaten British spending boom

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Rising prices are weighing on the confidence of British spenders, threatening the consumer boom which has driven recent economic growth.

Consumer confidence fell by a point in the first quarter to a negative reading of seven, according to a survey by accountants Deloitte.

Confidence in disposable income fell by three percentage points to a negative reading of 17 per cent in the quarter, its lowest level in more than two years.

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Growth in spending on essentials remained strong, at 12 per cent, but spending on luxury items fell by four per cent in the first quarter.

Inflation increased to an annual rate of 2.3 per cent in March, the fastest rate since 2013, as the combined effect of rising oil prices and the devaluation of sterling since the EU referendum contributed to higher prices.

Ian Stewart, chief economist at Deloitte, said: “Since last summer’s EU referendum consumer spending has held up well, but with inflation rising and nominal wage growth starting to slow, consumers are beginning to feel a squeeze on their disposable income.”

The dip in confidence comes after retail spending recorded its biggest quarterly decline since 2010, according to the Office for National Statistics.

Read more: Worrying signs surround the UK's consumer spending boom

Quarter-on-quarter sales fell by 1.4 per cent in the first three months of 2017.

However, despite the fall confidence remains in line with longer-term averages, and the decline in retail sales comes after an extended period of heightened spending.

Strong consumer spending, driven by low interest rates and a healthier global economy, may moderate in the coming months, according to Kallum Pickering, senior UK economist at Berenberg.

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However, the effects on overall growth may be limited, he said: “Households have the capacity to smooth consumption even if wage gains don’t keep up with inflation.”

He added: “In the UK we are experiencing a broad-based increase in growth.”

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