British shoppers grew more cautious about their spending in the three months to September despite enjoying real growth in their wages, raising concerns about the health of the economy in the run-up to Brexit.

Monthly retail sales volumes were flat in September and annual sales growth picked up to 3.1% from a weak 2.6% in August, the Office for National Statistics (ONS) said  — slightly less of a recovery than economists had forecast in a Reuters poll.

“Food shops bounced back after a weak few months, but there was yet more bad news for department stores, with sales continuing to fall in September,” ONS statistician Rhian Murphy said.

Consumer spending has been the biggest driver of British economic growth since June 2016’s referendum to leave the European Union (EU), but there have been increasing signs that this is starting to soften.

Looking at the third quarter as a whole, which strips out monthly volatility, quarterly sales growth held steady at 0.6% while the annual pace of expansion dropped to 3.1% from 3.6%, the weakest growth since the final quarter of 2018.

Some retailers also said bad weather had hurt demand too, the ONS added. Sales in the ‘non-specialised stores’ category — which includes department stores — dropped by an annual 2.0% in the third quarter, the biggest decline since the first three months of 2009 when Britain was mired in recession.

The figures chime to a degree with a British Retail Consortium survey that showed the biggest fall in retail spending of any September since at least the mid-1990s. In recent months, surveys by the BRC and Confederation of British Industry have painted a weaker picture of the retail sector than subsequent official data - in part due to the former focusing more on large high-street chains.

The ONS data has a broader sample that includes more online and small retailers, though it too is frequently volatile on a monthly basis. The ONS’s measure of retail spending showed annual sales growth slowing to 3.5% in the third quarter from 4.1% in the second quarter, its weakest growth rate in more than three years.

Until recently consumers appeared to have largely taken Brexit in their stride, helped by weaker inflation and stronger growth in wages which are rising at the fastest pace in more than a decade. That has aided the world’s fifth-biggest economy at a time when many companies have been cutting back on investment because of uncertainty about Brexit.

But there have been signs that consumers are turning more cautious as Britain’s political crisis drags on. Several British retailers, including supermarkets Asda and Morrisons and home improvement group Kingfisher, have highlighted the drag of Brexit uncertainty on bigger ticket sales. But clothing retailer Next attributed a disappointing start to autumn trading to unusually warm weather in parts of Britain, rather than shoppers holding back on buying new items because of Brexit.

British companies cut spending on marketing for the first time in seven years during the third quarter, as a rocky Brexit pushed businesses to keep a tight lid on costs, a survey showed.

The IPA Bellwether, conducted by IHS Markit, and based on a questionnaire survey of around 300 UK-based companies, stuck to its forecast and said it remains cautious towards 2019. It expects a 1.1% annual increase in ad-spend over the year.

“Nevertheless, the Bellwether report believes businesses will be eager to accelerate marketing efforts once uncertainty has cleared, and subsequently sees 2020 onwards being more positive on the ad-spend front,” the survey said.

It expects growth of 1.8% in 2020, followed by stronger rates of increase in the years after that.

Bellwether panel members, recruited from Britain’s top 1,000 companies, said the underwhelming performance of marketing budgets continued into the quarter and that the net balance was broadly unchanged from the prior quarter.

“Low consumer confidence was said to have generated hesitancy towards spending, leading firms to hold back on big-ticket marketing drives and tighten the purse strings,” the survey said.

Britain is scheduled to leave the European Union on Oct. 31, but it is still uncertain whether the two sides can make a breakthrough over the terms of the departure, while the risk of a disorderly no-deal Brexit also remains.

The survey showed that development of new online tools encouraged firms to boost their internet budgets with internet marketing remaining the “top performer” in the third-quarter.

Reuters