UK shoppers cut spending as rising bills and bond turmoil put pressure on economy

UK consumers are tightening their belts due to rising household costs and soaring temperatures, leading to a 0.5% drop in retail sales volumes in July. Investors are nervously watching bond markets amid rising borrowing costs and concerns over government debt. Susannah Streeter, Chief Investment Strategist at Wealth Club, notes that consumers are increasingly reluctant to spend on non-essential items, citing higher bills and hot weather as key factors. The energy price cap rise and June’s sales promotions have also contributed to weaker spending in July, with discretionary purchases like furniture and footwear struggling to sell. Food sales saw some support from the World Cup feel-good factor, but overall spending remained weaker than in June, with June’s retail sales increase revised down to 0.7%. Oil prices are rising above $93 a barrel, driven by US-Iran tensions and Russian energy disruptions, adding to inflation concerns. Meanwhile, US government bond market turmoil persists, with Treasury Secretary Scott Bessent doubling buybacks but investors still concerned about inflation and government borrowing. Tech giants are issuing corporate debt for AI expansion, competing with government bonds. US Treasury yields have climbed above 5.3%, and UK gilt yields hover around 5.8%. UK government borrowing reached £1.8 billion in July 2026, £700 million more than the same month last year and £2.3 billion above OBR forecasts. Tax receipts increased due to self-assessed income tax, but spending on public services, benefits, and debt interest outpaced revenue. Prime Minister Andy Burnham and Chancellor John Healey face calls for greater household support amid cost-of-living pressures, but limited room for maneuver due to investor scrutiny.