Families slashed their spending on holidays, shopping and going out in July as the economy is battered by the highest inflation in 40 years.
New retail sales and card data indicated that spending is falling in real terms as Britain’s biggest business lobby group called for action to help households, and hit out at a “power vacuum” in Government.
Debit and credit card data from Barclaycard showed a 7.7pc rise in overall spending in July compared to a year earlier but the figures have been artificially inflated by soaring prices.
The card data suggests a 2pc fall in spending in real terms if inflation for the month hits 9.7pc as expected, according to Martin Beck, chief economic advisor to the EY Item Club.
The figures added to growing evidence of belt tightening by households as a looming record fall in incomes forces families to cut back.
The Bank of England expects the economy to fall into a recession lasting more than a year after another shock to incomes from soaring energy bills.
New data from the British Retail Consortium (BRC) revealed a 2.3pc year-on-year rise in retail sales in July, but the industry group added that the figures “masked a much larger drop in volumes once inflation is accounted for”. Non-food retail sales in the three months to July were down 2pc as shoppers cut back.
Helen Dickinson, chief executive of the BRC, said: “With inflation at over 9pc many retailers are still contending with falling sales volumes during what remains an incredibly difficult trading period.”
She warned that shoppers and retailers will face a difficult period for the rest of 2022 as confidence drains out of the economy.
Barclaycard’s data showed that families are moving towards smaller and more frequent shops as two in five Britons cut waste by spending on a “need-to-buy" basis. The value of the average supermarket transaction value has fallen from £23.67 in January 2021 to £19.33 in July 2022 while grocery trips have increased from 8.7 per month to 11.9 over the same period.
Higher petrol prices drove a 30pc year-on-year jump in fuel spending and spending on utility bills was up 44pc.
Overall spending was up 1.6pc compared to June, according to the card giant. However, spending on international travel and hospitality dropped compared to a month earlier, falling 3.8pc in travel agents and 3pc at airlines.
Households also spent 1.5pc less on eating and drinking compared to a month earlier after June’s spending data was boosted by the Platinum Jubilee. However, hospitality spending was up 9pc.
José Carvalho, head of consumer products at Barclaycard, said: “Inflation continues to have a noticeable impact, with price rises forcing shoppers to spend more on essential everyday items such as fuel, butter and milk, and to cut back on some discretionary experiences such as meals and drinks out, and holidays abroad.”
It came as Britain's biggest business lobby group hit out at a failure by the Government to tackle the crisis as Liz Truss and Rishi Sunak battle to become the next prime minister.
Tony Danker, director general of the Confederation of British Industry (CBI), said a plan of action to help families with soaring energy bills was needed within a fortnight to "grip the emerging crisis".
The next prime minister is due to be named on September 5. The CBI urged the Tory leadership hopefuls to agree now with Prime Minister Boris Johnson how to help families before regulator Ofgem announces the latest energy price cap on August 26.
Mr Danker said: "It makes no sense to wait an agonising ten days or so from the price cap announcement to ‘day one’ of a new leader. That means the Prime Minister and the candidates should come together to agree on a common pledge to support people and help quell fears."
He also said the "summer of drift" risked hampering efforts to support the economy.
Mr Danker said the government should signal Britain remained open for business, with policies that would help to end chronic skills shortages while cutting red tape. The CBI also called on the Tory leadership candidates to confirm the date for an emergency budget.
Mr Danker said: "We simply cannot afford a summer of Government inactivity while the leadership contest plays out followed by a slow start from a new Prime Minister and Cabinet."