Buyer confidence has fallen to its lowest level since the 2008 financial crash as soaring costs of living led to a sharp drop in spending, new figures show.
The dire economic data led analysts to warn that the crisis could turn into a full-blown recession with prices rising and buyers tightening their belts.
Struggling households cut spending on online shopping, food and fuel, analysis shows, while Rishi Sunak was told the public had not received the help they needed.
And economists warn that much worse is likely to happen, with the impact of huge increases in energy bills and tax and National Insurance hikes yet to come.
Official figures released on Friday show retail sales fell 1.4% in March, faster than February’s 0.5% drop. Online spending fell 7.9% as the lifting of Covid restrictions caused people to start buying in-store again.
Fuel sales fell 3.8% as record petrol and diesel prices prompted motorists to cut back on non-essential trips.
Energy and fuel costs pushed up the price of several other goods, from food to clothing, pushing inflation to 6.2%, well above average wage increases.
The squeeze in real incomes is now starting to cause a crisis of confidence among buyers, according to separate data. A closely watched consumer confidence index compiled by market research firm GfK fell to -38 in April – the lowest level since 2008. The poll indicates further spending cuts are likely.
The “rapid but predictable” fall in spending had been made more severe by government decisions to cut benefits and raise taxes, said George Dibb, director of the IPPR Center for Economic Justice.
“Rishi Sunak’s decision not to support households adequately is not just a crisis for people struggling to cope, it actually risks tipping the UK economy into recession,” he said. he declared.
The Chancellor has been criticized for not announcing more help for people unable to cope with rising bills and soaring inflation.
A £150 rebate on council tax and a refundable £200 reduction on energy costs were widely seen as poorly targeted and inadequate. Energy bills for the average home are almost £1,000 a year higher than they were just over a year ago after the price cap jumped 54% this month- this.
Millions of Britain’s poorest households have also seen their incomes cut after the government refused to raise benefits in line with inflation.
Mr Dibb warned that people will look for other places to save money as the cost of living crisis begins to bite, depressing the wider economy. “The reduction in purchases, dining out, vacations and streaming subscriptions are the first to go,” he said.
James Smith, research director at the Resolution Foundation, said the risk of recession had increased and called on ministers to do much more to prevent a recession from happening.
Months of wage cuts and concerns about the cost of living have begun to dampen economic activity, he said. “A further downturn is far from certain, but the government should be doing all it can – and far more than it is currently doing – to help support low-income people who will be hit hardest. “
Sam Tims, an economist at the New Economics Foundation, said policy announcements so far have fallen far short of enough to deal with the rising cost of living. The decision not to increase benefits will hurt the whole economy, he said.
“It has an individual impact on more people going hungry or unable to heat their homes, but there is also an economic impact.” said Mr. Tims. “If people can’t spend money on the high street, in pubs and elsewhere, consumer spending will plummet and that’s something that’s likely to lead to a recession.”
He added that he did not see the situation improving any time soon and called on the government to ensure everyone in the UK had a living income.
“We are already seeing consumers adopting coping mechanisms to deal with income compression, such as seeking value and shrinking,” said Lisa Hooker, head of consumer markets at PwC, adding: “We have also seen greater resilience in spending across older age groups, perhaps reflecting that they have been less impacted by the lockdown in terms of finances, but are also likely to be supporting their families.