British consumers spent more in June, but the pace decelerated despite a heatwave and the World Cup, while businesses face high energy costs amid political uncertainty.
In June, British retail sales showed growth but at a slower rate compared to May. The BRC's total retail sales increased by 1.9% year on year, down from 3.7%, with like-for-like sales rising 1.7%. This deceleration suggests that the underlying consumer spending trend is softer than initial appearances might indicate.
The heatwave and World Cup provided a boost to certain sectors. Sales of clothing, fans, and air conditioning units increased due to the hot weather, while pubs reported strong trade on England's matchdays during the tournament. Non-food sales also grew by 1.2%, double their usual rate, thanks in part to online shopping.
While consumer spending picked up slightly according to Barclays' broader gauge of retail activity, essential goods saw a significant increase with spending rising 2.2%. This marked the largest rise in such spending in over a year and reflects ongoing concerns about inflationary pressures on household budgets.
The stabilisation in travel spending after April's decline due to geopolitical tensions related to Iran provided some relief but was not enough to counteract the overall slowdown. Sarah Bradbury from the Institute of Grocery Distribution noted that while warm weather and the World Cup could support consumer confidence again, political uncertainty and potential food price increases pose significant risks.
The new prime minister will inherit a pressing issue: high business energy costs. The Confederation of British Industry (CBI) and Energy UK called for urgent action to reduce these bills, arguing that 40% of firms are cutting investment due to elevated energy prices, which currently run 45% above the G7 median.
These organisations proposed stripping certain renewable obligations from business electricity bills and replacing them with alternative funding mechanisms. They also suggested removing the Climate Change Levy on non-domestic electricity, arguing that such changes could cut firm energy costs by up to 20%. The CBI's chief economist emphasized that stronger economic growth is impossible without addressing these high energy expenses.
Meanwhile, the Trades Union Congress called for a higher tax on bank profits as part of efforts to fund reductions in household energy bills. This adds another layer of complexity and political pressure to an already challenging environment for businesses.
Source: InvestingLive. Summarized and rewritten by the Vexoda Newsroom. This is market news, not financial advice.