Some retailers in the UK were forced to reduce their prices last month to drum up trade after the wet summer weather and rising interest rates combined to depress consumer spending.
Data from the BRC-KPMG Retail Sales Monitor shows total retail sales increased by 1.5% in July, with like-for-like growth of 1.8%. However, when inflation is factored in, the monitor suggests that there was another drop in volumes.
Over the three months to July, like-for-like food sales rose 8.7%, driven by soaring inflation in the sector.
However, non-food sales slipped 0.8% as cash-strapped shoppers made cutbacks, and people bought less summer clothing and other seasonal goods because of the poor weather.
“We are starting to see a big rise in the number of promotions that retailers are putting in place in order to get shoppers through the door, as they battle to keep market share,” said Paul Martin, UK head of retail at KPMG.
“Price-conscious consumers are shopping more carefully, more aware of where bargains can be found and what they are getting for their money.”
He added: “Both consumers and retailers are finding that they are having to get used to doing more with less as conditions remain incredibly challenging.”
It wasn’t just high street stores that suffered last month, with online sales continuing to fall from the highs reached during the pandemic. They dropped 6.9% year-on-year in July, with only a few categories, such as furniture and health & beauty, performing well.
“While consumer confidence is generally improving, it remains below longer-term levels,” noted Helen Dickinson, Chief Executive of the BRC.
Last week, the Bank of England put up interest rates for the 14th time in a row in a bid to dampen demand and slow price rises.
Economist Michael Hewson from CMC Markets said the slowdown in the pace of consumer spending was “not surprising”, considering interest rate rises. “This is what rate hikes are designed to do,” he said.
But Hewson suggested that there was a “looming cliff edge” as there is a lag before the effect of such rises is fully felt in the economy. He said consumers were now saving more to mitigate a sharp rise in mortgage costs as their fixed-rate deals come up for renewal.
Separate figures released today by Barclays, which monitors almost half of UK credit and debit card transactions, showed that annual growth in consumer card spending had slowed from 5.4% in June to 4% in July, again well below the rate of consumer price inflation.
But while Barclays also said the month had been a washout for clothing retailers, it found consumers were turning to wet weather alternatives, with spending on takeaways, digital content, live entertainment, and travel rising.
Abbas Khan, UK economist at Barclays, suggested that the headwinds of high inflation were abating, but also said this would be offset by rising mortgage costs as homeowners reached the end of fixed-rate deals.
“Accordingly, while we do not expect a consumer recession in the coming quarters, growth is likely to be meagre,” he said.
NAM Implications:
- Remember the heatwave/s?
- What heatwaves?
- Rain reducing demand…
- Best revert to the reality of volume sales.
- And the impact of continuing double-digit inflation,
- All resulting from lockdown fallout.
- Working its way through the system
- All unprecedented…
- …but in change of this magnitude, opportunities abound for those with eyes wide open.
- While the majority await a return to non-fiction…
