The latest BRC-KPMG Retail Sales Monitor shows the sector benefited from the good weather and major sporting events last month, although the uplift “barely touched the sides” of covering the hike in costs imposed on retailers that resulted from the last Budget.
Food sales grew 3.9% year-on-year, above the 12-month average of 3.2%, after supermarket sales were boosted by the warm weather early in the month, Wimbledon and the Lionesses’ victory at the Euros. However, the BRC also noted that rising food inflation meant increased spending was more a result of higher prices than improved demand.
“Own-label products continue to outperform brands, but modest volume growth shows inflation is masking any gains,” commented Sarah Bradbury, CEO at IGD. “A potential interest rate cut, and a sunny bank holiday could offer a much-needed boost at the end of the summer.”
Non-food sales rose by 1.4% in July, a significant improvement on the 12-month average of 0.8%. Fashion sold well early in the month, but deteriorated as weather worsened, while homeware and indoor furniture grew steadily, recovering from the previous year’s decline.
Overall retail sales increased by 2.5%, lower than the 3.1% rise recorded in June. “With sales growth at these levels, it is barely touching the sides of covering the £7bn new costs imposed on retailers at the last Budget,” said Helen Dickinson, Chief Executive of the British Retail Consortium (BRC).
“If the upcoming Autumn Budget sees more taxes levied on retailers’ shoulders, many will be forced to make difficult choices about the future of shops and jobs, and ongoing pressure would push prices higher. Ultimately, this means more families struggling, particularly those on lower incomes, reduced consumer spending and a drag on economic growth.”
Meanwhile, Linda Ellett, UK Head of Consumer, Retail & Leisure at KPMG, noted that with employment costs having risen and inflation both a business and consumer side pressure, it remains a challenging trading environment for many retailers. “While the majority of consumers that KPMG surveys are confident in their ability to balance their monthly household budgets, big ticket purchases are more considered in the context of rising essential costs and ongoing caution about the economy and labour market,” she said.
“Holidays are the priority for many this summer, but those heading away have had to account for a higher cost of travel. Consequently, spending in some areas of the retail sector remains subdued and competition for consumer spend will remain fierce.”
Separate data published today by Barclaycard showed that consumer card spending grew 1.4% year-on-year in July, compared with a decline of 0.1% in June. Discretionary spending rose by 2.4% but essential spending declined 0.7%.
Consumers appeared to still be confident in their own finances, matching previous months, but a gap has opened up with perceptions of the wider economy, the credit card provider said. Its survey found that confidence in the strength of the UK economy fell three points month on month to 22%, the lowest level since January (21%), having climbed in May to 28%.
Barclaycard highlighted that many consumers were now using artificial intelligence (AI) to manage their personal finances. It said 35% of UK adults had used AI to help them plan, budget or analyse their spending, rising to 69% among gen Z consumers.
Karen Johnson, head of retail at Barclays, commented: “The summer sales, changeable weather and shoppers seeking the ‘feel-good factor’ led to a strong July for retailers, particularly among beauty, clothing and furniture stores.
“While confidence in the UK economy remains subdued, prudent money management, supported by the growing popularity of AI tools to help with budgeting, is contributing to a continued resilience in personal and household finances.”
NAM Implications:
- Optimism aside, ‘rising food inflation meant increased spending was more a result of higher prices than improved demand’.
- i.e. little increase in volume sales.
- And now with savvy consumers using AI-assisted purchasing…
- …any real growth will have to come at the expense of rivals.
- i.e. Anticipate an even more competitive environment.
