Figures released today(21st August, 2014), by the Office for National Statistics showed continued retail sales volumes growth, but at a slower pace. Over the year to July 2014, volumes increased by 2.6%, the weakest rate since November 2013 and down from the high of 6.2% seen in April this year.

Within the headline figure, the greatest slowdown can be seen amongst food stores, which had sales volumes fall by 1.5% over the past twelve months. Although year-on-year volume declines in food stores are not unusual, the latest results also showed an annual drop in cash terms as well, falling back by 1.3%. This is the first time that this has happened in food stores since comparable data began in 1989.

At a time when overall consumer price inflation remains well above earnings growth, the sustained period of growth in sales volumes recently may seem counter-intuitive. However, spending has been supported by pricing decisions in retail stores – average prices among all retailers fell back year on year by 0.9%. High levels of consumer confidence have also helped to provide a boost to spending, with households winding down the amount of their income that they save, as economic prospects have brightened.

But today’s release provides further evidence that economic expansion in the UK is slowing. This year to date has seen the most rapid growth since the financial crisis, as both businesses and consumers shake off the gloom of recent years and return to spending. This trend couldn’t be sustained forever though, as the back half of 2014 is demonstrating. A more measured rate of growth is expected for 2015 and the following few years, as households continue to face relatively sluggish real wage growth, the Bank of England starts to tighten monetary policy, and the government is required to make sharp fiscal cuts to bring the deficit under control.