British households are cutting back as the Brexit effect on the pound continues to raise living costs, according to a clutch of reports that show shops, car dealerships and other consumer-facing businesses coming under pressure last month.

Uncertainty about the outcome of Thursday’s election was also cited as a factor as the reports showed a drop in retail sales, a slowdown for the vast services sector and a fall in new car sales last month.

They provided the latest signs that while manufacturers have picked up steam in recent months, those firms that rely on household spending have struggled, boding ill for the UK economy’s overall prospects this year.

Figures from the British Retail Consortium released on Tuesday showed that after an Easter-related bounce in April sales fell again in May, by 0.4% on a like-for-like basis from a year earlier. Taking less volatile figures for the last three months together, food sales rose but non-food sales were down.



“After the surge in retail sales last month – the byproduct of this year’s relatively late Easter – retailers have been brought back down to earth with a thump,” said Paul Martin, UK head of retail at the BRC report’s co-authors KPMG.

“The impact of inflationary pressures on the nation’s purse continues to play out in this month’s figures, with shoppers evidently spending more on food and drink than on non-food purchases.”

The upward push on prices stems largely from the pound’s sharp fall since last June’s Brexit vote. That has made imports to the UK more expensive and along with higher oil prices has lifted inflation to its highest level in more than three years. Wages have failed to keep pace, leaving workers worse off in real terms.



A closely watched survey released on Monday suggested those pressures were also hurting the services sector, which a wide range of businesses from banks to hotels. The sector momentum in May and grew at the slowest pace since February, according to the IHS Markit/CIPS UK Services PMI report, which gauges sentiment among some 650 firms.

Managers cited a drop in demand on the back of squeezed household budgets and delayed decision making among some clients ahead of the election. The report’s main activity index dropped to 53.8 in May from 55.8 in April. However, that was still well above the 50-mark that separates growth from contraction.

The poll, which excludes government services and retail but still covers half of the overall services sector, is used by investors and policymakers to help predict GDP growth. The compilers said that taken together with their relatively strong reports from the construction and manufacturing sectors last week, the services report still pointed to a rebound in growth for the UK following a very weak start to 2017, when GDP expanded just 0.2%.

“The three PMI surveys are running at levels that are historically consistent with GDP growing at a robust 0.5% rate, albeit with the slowing in May posing some downside risks to the near-term outlook,” said Chris Williamson, the chief business economist at IHS Markit.



The survey suggested cost pressures eased off for services firms last month and they continued to hire new workers amid cautious optimism. However, many economists expect the UK will struggle to match its 2016 performance when it defied predictions of a post-referendum downturn and was instead one of the fastest-growing advanced economies in the world.

Figures from the car industry added to signs of consumer caution. The number of new cars registered in May fell by 8.5% year on year to 186,265, according to the Society of Motor Manufacturers and Traders. It was the second month in a row that sales were down after a record March when there was a rush for new cars before tax changes on vehicle emissions.

The SMMT suggested the looming election was prompting customers to hold off from buying new cars but that the market remained strong overall.

Barclaycard was less upbeat about the outlook. Its latest figures showed consumer spending growth slowed to 2.8% year on year in May, the weakest for 10 months.

The company, which processes nearly half of UK credit and debit card transactions, said shoppers cut their spending on goods such as food and clothes but still found money for experiences, such as cinema trips as Guardians of the Galaxy Vol. 2 and Alien: Covenant were released.

Polling of 1,868 people conducted for Barclaycard by YouGov found 53% felt confident about their household finances, down from a high of 70% in March. A similar proportion, 52%, said they were “feeling the squeeze” from inflation.