U.K. retail sales fell much more than expected last month, the Office for National Statistics said Friday, sending the pound lower against the U.S. dollar amid concerns for the pace of consumer growth in Europe's second largest economy.
Retail sales fell 1.8% in March, the ONS said, capping the worst three month period for the sector in at least seven years after a downwardly-revised reading of -1.7% for the month of February (from -1.4%). Analysts had forecast a gain of 0.5% for March, and the weaker-than-expected reading took the pound 0.22% lower against the U.S. dollar to 1.2785 immediately following the data release.
"It is not surprising to see consumers reining in their spending. Inflation has caught up with pay growth, so real incomes of workers are no longer rising," said Andrew Sentance, a senior economic adviser at PwC and a former Bank of England rate setter. "Employment growth has also slowed sharply over the past six months, even though unemployment remains historically low."
"The recent period of strong consumer spending growth also relied on households running down their saving and increasing borrowing," Sentance added. "That pattern of behaviour is not sustainable in the longer term and at some point consumers will start to rein in borrowing and rebuild their savings."
British consumers have faced searing inflation since the country voted to leave the European Union last June, with the pound falling around 18% against the greenback in global foreign exchange markets and headline prices accelerating to a four-year high of 2.3% last month, according to ONS data. The price increases, however, have not been matched by wage gains, even as the country's labor market enjoys record-high employment.
Wage gains on a rolling three-month basis are growing at only 0.2% when adjusted for inflation, according to recent ONS figures, the slowest pace of increases in at least five years.