The UK’s services sector has reported its first decline of the year – but some consumer spending is up, according to new figures.
Closely-watched survey the S&P Global/CIPS UK Services PMI reported a score of 49.5 in August – and any figure below 50 suggests an overall reduction in service sector output.
The figure is down from 51.5 in July and the lowest since January.
But while it includes some consumer spending – on transport, communication, finance, insurance, real estate and business services – the data does not include retail sales.
Experts blamed rising interest rates for the apparent slump in demand.
Tim Moore, economics director at S&P Global Market Intelligence, said: “After a modest recovery over the past six months, service sector businesses are now clearly feeling the impact of rising interest rates on client demand.
“Worries about the broader business climate also dampened spending in August, with firms suggesting that faltering UK economic growth and sticky inflation were weighing on the outlook.”
Dr John Glen, chief economist at the Chartered Institute of Procurement and Supply, added it appeared to demonstrate that the “cooling economic effects of higher interest rates” were starting to impact on spending and confidence.
Barbie boost helps economy cope with softer spending
Despite the overall dip for services spending, the theatrical releases of Barbie and Oppenheimer helped boost consumer spending on entertainment this summer.
Spending in cinemas surged by 101% in the four weeks to 18 August following the release of the blockbuster films, according to consumer card data from Barclays.
The bank said it contributed to entertainment sales overall during the period leaping 12% year-on-year – more than in any other sector in total – while the travel and beauty industries also reported strong growth.
The figures back up claims from cinema chains that the two movies had a major impact on box office receipts in the UK as filmgoers flocked to watch the titles – jokingly given the combined nickname ‘Barbenheimer’ in recognition of their simultaneous release but sharply contrasting subject matter.
However, Barclays said consumer card spending during the period was up only 2.8% overall – down on the previous period’s figure of 4% in late June and into mid-July.
The total was dragged down by a decline in clothing and electronics sales, while high street spending was also dampened by disappointing wet weather during the summer holidays peak.
Supermarkets, and food and drink specialist stores, saw weaker spending growth – of 4.5% and 4.9% respectively – compared to last month, while general retailers experienced a 5.3% rise in sales.
Spending on airlines rocketed by 32.1% – but the travel industry overall reported growth of 10.7%.
Read more from business:
Why are fuel prices rising and will they come down?
Tesco staff offered body cams after spike in assaults
Chancellor confident ‘inflation is coming down’
Memories prioritised by customers feeling the pinch
Barclays said the figures suggested that Britons had been prioritising “memories over material things”, while cutting back on other non-essentials such as takeaways and eating out, amid high bills, inflation and the looming prospect of Christmas.
Esme Harwood, a director at the bank, said: “The rainy weather impacted high street and hospitality venues in August, but Brits were still keen to spend on memorable summer experiences.
“The huge Box Office success of Barbie and Oppenheimer meant entertainment enjoyed another strong month, while holidays abroad boosted international travel and pharmacy, health and beauty stores.”
A consumer confidence survey by Barclays also found that 52% of adults had noticed that some of their usual food and drink product purchases had reduced in quality and yet still cost the same or more as before – a phenomenon dubbed “skimpflation”.
Meanwhile, separate data from the British Retail Consortium (BRC) and accountancy firm KPMG pointed towards a better outcome for shops, with total retail sales rising by 4.1% in August compared to the year before.
It marks a sharp improvement on July’s figure of 1.5% and was also a rise on the three-month average of 3.6%.
However, researchers cautioned the sales figures are not adjusted for inflation.
The report, released on Tuesday, also reported a strong performance for health and beauty stores.
But internet retailers experienced another decline, with a 3% year-on-year fall in online sales.
Retailers hopeful of continuing positive trend
It came after the consumer price index (CPI) of inflation fell to 6.8% in the year to July.
Prices for some products still remain a stretch for many shoppers, though – including for food, which official figures report are still seven times higher than a year ago.
BRC chief executive Helen Dickinson said: “Retail sales in August improved, particularly on July’s poor performance.
“Sale of non-food products had their best month since February, particularly for health and beauty products as retailers continued to invest in new, exciting brands, and customers splurged on self-care.
“The sales figures reflected the improvement in consumer confidence in August, and retailers hope this general upwards trend will carry on.”
She added: “Easing inflation will certainly be welcomed by consumers, but as the rate of price rises falls, so will the extra spending needed by consumers.
“As a result, sales growth may fall in the coming months, even if volume growth does not.
“Furthermore, high interest rates and high winter energy bills will put pressure on many households to spend cautiously.”
