Official figures from the Office for National Statistics (ONS) show retail sales volumes rose by a stronger-than-expected 1% in August, with growth in July also revised up (from 0.5%).
After a difficult few months for the sector, warmer weather and end-of-season sales helped boost sales in supermarkets and clothing retailers.
Recent reports from some leading retailers suggest discretionary spending remains under pressure in the UK despite easing cost of living pressures.
In the last week, both Primark and B&Q owner Kingfisher reported a decline in underlying sales in their quarterly results, impacted by poor weather at the start of the summer and consumer caution over bigger purchases. However, NEXT said yesterday that it had seen better-than-expected sales in the first six weeks of its second half after an improvement in the weather. However, it noted that ‘big ticket’ home furnishing items remained a difficult market.
Commenting on the ONS figures, Nicholas Found, Senior Consultant at Retail Economics, said: “August’s heatwave brought a much-needed boost for summer essentials, with promotional activity driving retail sales volumes up over 2% year-on-year (non-seasonally adjusted, excluding fuel).
“However, the outlook for retail spending remains cautious. Despite stabilising headline inflation, household finances are still under pressure, with consumers now spending nearly a third more on everyday essentials such as food, energy, and housing compared to pre-pandemic levels. Real wages are limping at around 2%, leaving discretionary incomes flat compared to two years ago for the typical family – challenging growth in retail.
“A sharp dip in consumer confidence between August and September reflects growing anxiety around personal finances, which could weigh heavily on retail spending in the critical run-up to Christmas.
“In the short term, there’s concern among households about potential tax hikes, and interest rates were held at elevated levels this week, quashing hopes for big-ticket spending. Consumers are turning to smaller indulgences, and retailers that strike the right balance between premium and mass-market offerings are capitalising on this shift towards affordable luxuries.”
NAM Implications:
- A spell of hot weather and heavy promotions (at a high supporting cost)…
- …managed to squeeze 1% volume ‘growth‘ from the market.
- But consumers are still cautious (see latest consumer confidence figures)
- Think potential tax hikes and interest rates were held at elevated levels this week.
- i.e. Clear thinking consumers will need more convincing than currently available.
- This all means that any growth will come at the expense of rivals…
