Fears that consumer spending has begun a steady decrease, ahead of public sector budget cuts, have been prompted by lower retail sales in August.

It had been predicted that consumer spending was unlikely to continue its recent contribution to growth, with the latest Office for National Statistics figures reporting a 0.5 per cent drop in the value of sales compared to July.

Retail sales rose 1.9 per cent compared to August last year, but the exchange trader Caxton FX said the decrease on July, halting consistent growth in sales since January, led to a sell-off in sterling.

Duncan Higgins of Caxton FX said the data confirmed fears that the gross domestic product (GDP) figure for the third quarter of 2010 would be disappointing.

“Food, fuel, clothing, and household goods sales all made moderate declines in August as consumers tighten their pockets ahead of what is set to be a tough end to the year,” Higgins added.

Challenging concerns that consumers were being more cautious, Barclays said spending on credit and debit cards increased by 9.2 per cent in August compared to the same time last year.

The increase in card spending recorded by the Barclaycard Spending Index, which tracks card spending based on around 30 per cent of the UK market, represents the fourth month in a row that annual growth has been over 9 per cent.

The index did record a decrease of 1.9 per cent in spending compared to July, in line with the general retail sales numbers, but this was attributed, in part, to an early start to summer sales in July. 

Stuart Neal, head of Barclaycard UK Payment Acceptance, said: “While there is some cause for viewing the near future with a certain amount of trepidation, recent indicators are good. Confidence remains relatively high, but it will be important to see how spending fares when public spending cutbacks begin to hit people’s pockets and not just the headlines.”

© Fair Investment Company Ltd