UK retail sales increased in July but the long-term downward trend in consumer spending looks set to continue, official figures show.
The unpromising trajectory comes at a time when interest payments on government debt jumped by about 40 per cent last month amid rapidly rising inflation.
The Office for National Statistics said government borrowing hit £4.9 billion in July. The figure was significantly higher than the £2.8bn in borrowing that analysts predicted for the month.
The ONS said retail sales rose slightly in July, with the increase of 0.3 per cent better than economists’ expectations of a 0.2 per cent drop.
But sales fell by 1.2 per cent in the three months to July, reflecting a restrained decline in shoppers splashing the cash since last summer as the cost-of-living crisis puts a squeeze on people’s wallets.
A revision of June’s retail figures also put sales slightly lower, with a 0.2 per cent drop rather than 0.1 per cent, in a sign that shopping activity was slower than previously thought, the ONS reported.
Darren Morgan, director of economic statistics at the ONS, said despite sales being “nudged up very slightly” in July, the downward trend which started in summer 2021 showed no signs of stalling.
“Online sales did pick up this month, as retailers told us that sales were boosted by a range of offers and promotions,” he said.
“However, fuel sales fell with some evidence suggesting the very hot weather meant fewer people travelling.
“Clothing and household goods sales declined again, with feedback continuing to indicate consumers are cutting back due to increased prices and concerns around affordability and cost of living.”
Soaring inflation continues to add to state borrowing. However, last month, the government borrowed £800 million less than in the same month last year.
July’s figures were still £5.9bn up from pre-coronavirus levels in 2019, when the Conservative-led government reported a surplus of £900m.
Debt interest payments climbed to £5.8bn in July, rising from £3.5bn in the same month last year due to increases in Retail Price Index (RPI) inflation.
The ONS earlier this week revealed that RPI leapt to 12.3 per cent, while the broader Consumer Prices Index (CPI) inflation figure hit a new 40-year high of 10.1 per cent.
Government spending increased by £3.4bn to £76.5bn in July, compared with the same month year, the ONS said.
In response, Chancellor Nadhim Zahawi said: “I know that rising inflation is creating challenges for families and businesses, and it is also putting pressure on the public finances by pushing up the amount we spend on debt interest.
“To help people during this difficult time, government support is continuing to arrive in the weeks and months ahead, targeted to those who need it most, like pensioners, people on low incomes and those with disabilities.
“We are taking a balanced approach: safeguarding the public finances while providing significant help for households.”
Mr Zahawi, an Iraqi-born MP who arrived in the UK as a child refugee, could be in his final weeks in Number 11 Downing Street as he may be ousted from his role when the next prime minister takes over.
He has backed Liz Truss to win the Tory leadership race over her rival Rishi Sunak.