The pound has been on a downward spiral since the Brexit referendum, and that inflation is reflected in lack of consumer spending. In May, the U.K. saw its first decline in consumer spending since September 2013, as it dropped an annual 0.8 percent.
Inflation has accelerated over the last year and is currently outstripping annual wage increases. It is expected that inflation will reach about 3 percent by the end of the year.
The failure of earnings to keep pace is putting pressure on households, and by extension is suffocating service companies, which make up the largest part of the economy. Retail demand is similarly plunging.
“The services sector is definitely slowing down, with many blaming this on the snap election,” said Peter Hemington, a partner at the accounting firm BDO. “But the downward trend is clearly much more deeply rooted than this. Surprisingly, U.K. businesses remain optimistic about the future, but an immediate recovery seems unlikely.”
Indeed, things could very possibly get worse as political uncertainty continues to drive people’s financial decisions. The Conservative Party lost its Parliament majority in a vote last weekend, and Prime Minister Theresa May was forced into an alliance to keep power. This comes just as the government is about to start discussing the particulars of its exit from the European Union.
The Bank of England will address this matter at its policy debate Thursday.