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Retail slump shows we're feeling gloomier

Business News

BUSINESS / Business News 7 Views comments

Retail sales figures really do mean something - they act as a barometer for our national economic confidence.

And right now, it seems we're starting to feel a bit gloomy.

Put simply - we all often behave in the same, commonsense way.

When we feel good about the state of our finances, we tend to go and spend money in the shops, even if we have to borrow money or use a credit card.

When we think our finances are a bit tighter, then we generally buy less.

And that's what's happened over the past few months.

:: Retail sales plunge blamed on price rises

We've started buying fewer things, and spending less money in the process.

Today's figures suggest that the UK's national output - gross domestic product - is already likely to be affected by our slowing appetite to spend.

The ONS says growth in the quarter will be 0.1% lower due to these latest figures.

In any country, that's a problem.

But in the UK, it's more of an issue than most places.

One of the reasons that Britain's economy has coped pretty well over recent times has been thanks to resilient consumer spending, but if that largesse begins to ease, then the UK's economic machine might start to slow.

So what's causing this?

The answer is probably to do with two of the most fundamental influences on our life - inflation and wages.

When inflation is going up at a slower rate than our wages, then we feel wealthier because our money is going further.

Food bills, for instance, have actually been going down over recent years, so we felt we had more money to throw at other things.

Remarkably low interest rates have let us splurge on cars, sofas, holidays and widescreen TVs.

PPI payments boosted many people's bank balances but, instead of keeping the money safe, we splurged it.

The amount of money that we're saving has been falling for years.

But now inflation is rising again, up to the point where it pretty much exactly matches wage growth.

Most expect the lines to cross shortly, which will mean that prices will go up at a faster rate than wages.

That will mean that we all start to feel a little bit poorer, and that we'll probably stop spending quite so fast.

What's more, we'll spend in different places.

There are certain things that everyone tries to cover, come what may - food being at the top of the list.

But we're already seeing signs that people are cutting down on other areas.

Compared to last year, we're spending more on food, but less on everything else.

If we start to feel more squeezed, that could play into the election.

A couple of days ago, Labour's shadow chancellor, John McDonnell, claimed the election was being rushed through because the economy was about to "dive".

He will seize on today's figures as evidence for that, which will put ever more emphasis on economic data as it comes out - in the coming weeks, we'll get new data on public finances, GDP inflation and zero-hours contracts.

Expect Mr McDonnell to scrutinise all of those for more signs of an economic slowdown.

The flip side is that we know what's causing inflation, and largely it's the effects of Brexit.

As with so much in this campaign, the argument about who the electorate will trust with the economy will be closely allied to the question of who they trust to manage our withdrawal from the European Union.

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