Squeeze on disposable incomes ‘may hit recovery’

Official data and surveys have shown an improving outlook for UK consumer spending, which generates about two-thirds of gross domestic product, but retailers remain wary as inflation continues to outstrip wage rises.

“In 12 months time I think we’ll be sitting here saying inflation’s running at about three per cent and average wages have gone up about one per cent.

“So net on average a couple of per cent out of people’s incomes,” said Justin King, chief executive of the UK’s third largest supermarket.

“The reality is whatever happens, I think, in the economic backdrop, we’re not going to see a sea change in the amount of money that consumers have to spend,” he told a grocery industry conference.

Mr King said it was an individual’s personal circumstances that determined how they felt about the future.

“If they change their view about the future they might start making purchases that require a long term positive view,” he said.

Mr King said that on Friday the Society of Motor Manufacturers and Traders reported the highest number of September new car sales for more than five years.

“It seems to me that’s likely to reflect people being a little bit more optimistic about their personal circumstance, keeping a job for two or three years,” he said.

Last week Sainsbury’s met forecasts with a pick-up in quarterly sales.

Separately on Tuesday industry data showed growth in retail sales slowed for a second consecutive month in September.

The British Retail Consortium said the total value of retail sales was 2.4 per cent higher in September than a year ago, the second-weakest reading this year.

Like-for-like sales, which strip out changes in floor space as retailers open and close outlets, rose 0.7 per cent, less than half the rate of growth of the previous two months.

The survey provides a note of caution after a stream of surprisingly strong economic indicators.

“These figures are a reality check and will make retailers nervous as we enter the run up to Christmas,” said David McCorquodale, head of retail at KPMG.

Some of Britain’s biggest retailers have sounded a cautious note on the recovery.

Bradford-based Morrisons said last month that higher spending in London was not indicative of the rest of the country.

Next, Britain’s second-biggest clothing retailer, said a full-blown recovery would require growth in real earnings, not just borrowing.