BoE reports stronger retail sales but weaker consumer services

Retail sales have picked up but demand for consumer services is being held back by squeezed incomes and political uncertainty, according to the Bank of England’s latest survey of business conditions.

The tick-up in retail sales in the second quarter of 2018 was helped by stronger sales of clothing and footwear but this was not enough to make up for sales lost to extreme winter weather in the first quarter.

Demand for new cars, white goods and items for the home remained weak, reflecting shoppers’ reluctance to spend on big items and the weak housing market.

Growth in consumer services slowed as consumers spent less on small items such as travel and hotels but bookings for summer holidays held up. Problems with the government’s Universal Credit benefit changes also appeared to be a problem.

The BoE said: “Contacts attributed more cautious consumer sentiment to squeezed real incomes, higher pensions auto‑enrolment contributions and political uncertainty. Third-sector contacts suggested that delays in benefit payments and benefits sanctions were increasing the pressure on low-income households.”

The survey is conducted by the BoE’s agents who interview business contacts across the country to gauge sentiment. The survey is one of the factors BoE policy makers consider when deciding on interest rates.

The agents’ findings are unlikely to sway opinion on the path of interest rates much as the BoE’s monetary policy weighs up a mixed bag of economic data before its August meeting – when some economists think rates will rise after the MPC held back in May.

Business and financial services suffered from investment delays due to political uncertainty but professional services firms were helped by merger and acquisition activity, Brexit preparations and insolvency and restructuring work as well as advising on new regulations.

In manufacturing, domestic output edged up as some factories benefited from suppliers buying more from the UK. Factory output for exports eased but remained firm, the BoE said.

Construction recovered from the near-standstill induced by extreme weather in the first quarter but lost activity was not made up. Housebuilding weakened and there was not enough new work for infrastructure companies while retail store expansion was “significantly curtailed”.