UK may be in retail recession as September sales fall steeply - The Guardian

The UK may already be in a retail recession after sales suffered a much steeper than expected fall in September.

Unseasonably warm weather kept shoppers out of stores, and consumers cut back on non-essential spending amid the cost of living crisis, official data shows.

Figures from the Office for National Statistics show a 0.9% month-on-month fall in retail sales volumes in Great Britain in September. This followed a 0.4% rise in August and is considerably worse than the 0.2% decline that had been expected by analysts.

Overall, non-food stores sales fell by 1.9% as consumers steered clear of buying autumn and winter wear and enjoyed the last of the late summer sun.

“Retail sales fell notably in September with retailers telling us that cost of living pressures are influencing consumers, particularly for sales of non-essential goods,” Grant Fitzner, the chief economist at the ONS, said. “It was a poor month for clothing stores as the warm autumnal conditions reduced sales of colder weather gear.”

Department store and household goods sales fell by 1.6% and 2.3% respectively month on month as consumers cut back on big-ticket purchases.

However, there was a modest 0.2% rise in the volume of sales at food stores and supermarkets in September, although this was down on the 1.4% monthly boost reported in August.

Fuel sales volumes rose 0.8% in September, having fallen 1% the previous month, because of more rail strikes last month.

Online sales volumes suffered a 2.2% drop, with the broad fall in retail sales prompting analysts at Capital Economics to suggest the UK had entered a retail recession.

“The fall in retail sales volumes in September meant sales volumes fell 0.8% quarter on quarter in the third quarter and suggests that after the 18-month-long retail recession came to an end in the first quarter, the sector may already be back in recession,” said Alex Kerr, an assistant economist at Capital Economics.

“Sales volumes fell in each of the other five main categories [other than fuel], which indicates that the weakness was fairly broad-based. This doesn’t bode well for retail sales growth in the run-up to Christmas,” Kerr added.

The overall amount spent shopping also fell 0.2% month on month, compared with a 4.7% increase in September last year, as consumers desperately try to rein in overall household spending in the face of soaring prices because of inflation.

Earlier this week, the UK rate of inflation unexpectedly held at 6.7%; most economists had expected a marginal dip of a tenth of per cent, raising questions over what the Bank of England’s decision on interest rates next month will be.

On Friday, Andrew Bailey, the governor of the Bank, was positive as it showed a slow down in core inflation.

“It was not far off what we were expecting,” he said in an interview with the Belfast Telegraph. “Core inflation fell slightly from what we were expecting and that’s quite encouraging.”

The annual rate of core inflation, which excludes food and energy prices, slowed to 6.1% in September from 6.2% in August.

Bailey expects to see a “noticeable drop” in the headline rate of inflation when October figures are released because of the sharp rise in energy prices last year falling out of the annual comparison.

However, he said wage inflation remained an area of concern but that he expected to see the overall rate of inflation continue to fall.

“Pay growth as measured is still well above anything that’s consistent with the (inflation) target,” he said. “I understand, though, that people will want to see the evidence that inflation is coming down. I think we can see that evidence. I think that by the end of the year, we’ll see more evidence of that.”

However, UK consumer confidence continues to tumble, with GfK registering the biggest monthly fall since 1994, excluding the coronavirus pandemic, this month as households grow more nervous about the prospects for their personal finances and the wider economy.

The latest gauge of consumer optimism from GfK dropped to a three-month low of -30 in October, down from September’s reading of -21.

“This sharp fall underlines that the cost of living crisis, and simply not having enough money to make ends meet, are still exerting acute pressure for many consumers,” said Joe Staton, the client strategy director at GfK.

“The fierce headwinds of meeting the accelerating costs of heating our homes, filling our petrol tanks, coping with surging mortgage and rental rates, a slowing jobs market and now the uncertainties posed by conflict in the Middle East, are all contributing to this growing unease.”

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2023-10-20 08:05:00Z
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