It is the first time non-food spending has dropped since mid-2012 and economists fear this means the economy is now slowing down – since the Brexit referendum household spending has been a big driver of growth, so a slump in spending will dent economic prospects, the Telegraph reports.
Food spending in the three months to February was up 0.6 per cent compared with the same period a year ago, according to the British Retail Consortium, as higher prices forces shoppers to spend more on essentials.
Inflation is kicking in as the weak pound pushes up the price of imported goods.
But non-food spending fell by 0.4 per cent, the first drop in more than four years.
Spending on stationery, household appliances, clothes, shoes, home accessories, health and beauty products, and luxuries such as watches and jewellery all dropped.
Households did spend more on toys and baby equipment, house textiles and furniture, however.
As a result total spending – on all retail goods combined – grew by just 0.1 per cent on the year.
“The persistent weak sales performance of several non-food categories points to an undeniable trend of cautious spending on non-essential items,” said BRC chief executive Helen Dickinson.
Economist Howard Archer at IHS Markit said evidence is mounting from a range of surveys that consumption is slowing, with serious implications for the wider economy.
This reinforced the “belief that consumers are now reining in their spending as rising inflation increasingly squeezes purchasing power,” he said.
“With consumers becoming more cautious in their spending, the long anticipated slowdown in the economy looks to be materialising. The economy’s persistent resilience since last June’s Brexit vote has been largely built on consumers keeping on spending.”
The Bank of International Settlements – the central bank for central banks – added to the warnings, with new research indicating that economies which are based on consumption tend to be weaker and less stable than those with a strong focus on investment.
“GDP growth has increasingly been led by consumption. However, consumption-led expansions tend to be significantly weaker than when growth is driven by other components of aggregate demand, often because of the build-up of imbalances,” said BIS, in an analysis of a range of economies around the world.
“While factors such as credit growth and rising house prices can boost consumption in the short run, the incidence of consumption-led growth and rising debt service ratios significantly dampen growth in the medium to long run. Policies that address the build-up of imbalances and strengthen investment are therefore central to fostering durable growth.”
The link is particularly strong in countries where home ownership is high and consumption and debt are in part driven by house prices.
Britain is particularly sensitive to house prices, and a rise in the housing market can make households feel better off and encourage them to spend more, BIS found.
But although that boosts the economy for a time, the extra debts involved can catch up with households and hit growth over a longer time period.
The research has important implications for the UK which has a powerful housing market, consumption-driven growth, and weak business investment levels.
