London: British shoppers unexpectedly cut back on their spending in January as last year's Brexit vote pushed up inflation, official data showed yesterday, the strongest sign to date that the country's economy is heading for a slowdown.
Consumers were barely fazed last year by June's decision to leave the European Union. But they are turning more cautious with prices rising quickly in response to the post-referendum slump in the value of the pound and higher oil prices.
Official data yesterday showed retail sales volumes fell by 0.3 percent month-on-month in January, much weaker than economists' forecasts in a Reuters poll for a 0.9 percent increase. No forecaster had expected a fall. "The theme for most forecasters this year is that consumer spending is going to suffer as higher prices erode real incomes.
But I don't think anyone would have expected the pace of spending to have suffered so much so soon," Alan Clarke (pictured), an economist with Scotiabank, said.
The pound fell sharply and was down half a percent against the US dollar after the data. British government bond prices, which like the currency are sensitive to expectations about future Bank of England interest rate decisions, rose.
Yesterday's data underscores why the Bank has signalled it is in no rush to raise record-low rates as it expects rising inflation will hurt the spending power of households.
The Office of National Statistics said retail prices rose 1.9 percent in January compared with a year ago, the most since July 2013 and up sharply from December's 0.9 percent. The rise in motor fuel prices, up 16.1 percent, was the biggest since September 2011. As well as weaker sterling, fuel prices have been pushed up by an increase in global oil prices.
