Q2 wipeout bodes ill for shopper spending

There was zero growth in gross domestic product over the period, when household expenditure fell 0.1 per cent, the Office for National Statistics reported.

The gloomy findings may prompt consumers to further rein in their shopping spend, analysts fear.

Capital Economics chief European economist Jonathan Loynes said it was “almost certain” that the economy would contract in the third and fourth quarters and therefore be in recession.

Battered consumer confidence, declining disposable income and rampant food inflation have combined to create the most difficult retailing conditions in decades. The pressure is likely to be ratcheted up further as consumers face up to the prospect of recession.
Although falling house prices have knocked consumer confidence, Kaupthing analyst Matthew McEachran believed the biggest factor influencing shopper behaviour would be unemployment levels.

As retailers approach the vital Christmas selling season, he warned that shoppers might hold back spending in the intervening months before splashing out in December.

He said: “It’s going to be about how much people have to spend and how much confidence they have to spend it. People normally make Christmas happen, so I’m a bit negative about September, October and November.”

Many analysts remain bearish on the retail outlook. Landsbanki’s Paul Deacon noted: “The pressures on the consumer sector are acute. We still see downgrades as the major risk factor for the sector, with the worst of the slowdown yet to impact.”

Prime Minister Gordon Brown, who has been criticised by many consumers for his handling of the economic crisis, will relaunch his government in the autumn. Retailers hope that measures will be introduced to lighten their burden.

The BRC has written to Chancellor Alistair Darling ahead of his pre-Budget report to urge the adoption of policies that will help the stores sector and improve consumer confidence.