Retailers celebrate but economists worry the surge is the last

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Retailers made another record high sales in July as sunny weather prompted shoppers to hit the high street in force, using more money notwithstanding rising inflation and slow wage growth.

Strong development should boost the economy to continue expanding at a time of scepticism – but economists worry the squeeze on family finances could mean this support for GDP may be nearing an end.

Growth expedited in July, according to the Confederation of British Industry’s distributive trades study, which saw retailers expect steady development into August.

“The warm summer has added sizzle to our high streets as shoppers defied expectations, with sales growth in clothing shops and grocers driving overall performance,” said Anna Leach, the CBI’s head of economic intelligence.

“But while retailers expect a similar pace of growth next month, the factors underpinning their sales growth are [shakier]. Although employment is strong, real incomes are falling in the wake of higher inflation, and that’s expected to feed slower consumer spending growth ahead.”

The ratio of retailers announcing rising sales exceeded those reporting a drop by an edge of 22 percentage points – well beyond the three percentage points which had been projected.

Such development may be difficult to manage, however, if the pressure on pay is extended.

Oxford Economics predicts that the average consumer’s buying power in the 12 months to June was falling by 0.9pc, or £160, as opposed to the previous year in the same period.

“We are probably now at the point where the squeeze on household finances is at its most severe,” said economist Andrew Goodwin.

“But while the prospect of lower inflation next year is a positive for consumers, persistently weak wage growth and the continuation of the freeze in benefits means spending power is likely to deteriorate again over 2018 as a whole. This implies a very subdued outlook for consumer spending.”

On the other hand, a report from Moody’s Investors Service indicated the UK could be in for a time of declining economic development.

“Alongside weaker GDP growth in 2017, a broader array of indicators point to a prolonged moderation in consumption, despite the UK labour market remaining firm thus far,” said Colin Ellis at Moody’s.

“Given higher inflation following sterling’s decline, surveys suggest that households are increasingly pessimistic about the future, with a weaker housing market and tighter credit availability acting as additional headwinds.”