Retail gross sales fell sharply in August as UK shoppers struggled with hovering costs and excessive power prices, heightening the chance of a recession and heaping contemporary strain on the pound.
The amount of products purchased within the UK fell 1.6 per cent between July and August, reversing the small growth within the earlier month, in line with information printed on Friday by the Workplace for Nationwide Statistics.
This was a bigger drop than the 0.5 per cent contraction forecast by economists polled by Reuters and the biggest fall since July 2021 when Covid-19 restrictions on hospitality had been lifted.
The ONS mentioned that “rising costs and value of residing” had been affecting gross sales volumes. Gross sales volumes are additionally persevering with a downward pattern for the reason that summer time of 2021 following the reopening of the economic system after Covid-19 lockdowns.
The figures spotlight how excessive inflation is hitting shoppers and the broader economic system. The federal government’s £150bn power assist bundle introduced earlier within the month is predicted to restrict the blow from the latest surge in gasoline costs, however it doesn’t dispel the chance of a recession.
The pound dropped on Friday after the disappointing retail gross sales information. Sterling fell 0.4 per cent towards the greenback to $1.142, a stage the place it has not frequently traded for the reason that mid-Eighties. The pound additionally declined towards the euro, leaving it buying and selling down 0.3 per cent at €1.143.
Olivia Cross, economist at Capital Economics, mentioned the figures supported her view that “the economic system is already in recession”. She added that retail gross sales would “most likely proceed to battle as the price of residing disaster hits more durable within the coming months”.
Gabriella Dickens, economist at Pantheon Macroeconomics, mentioned the information was “one other growth that ought to steer the Financial Coverage Committee in the direction of a 50 foundation factors improve within the financial institution fee subsequent week, quite than the 75 foundation factors hike deemed probably by markets”.
The Financial institution of England is predicted to boost rates of interest for the seventh consecutive time at its assembly subsequent week because it offers with an inflation rate almost 5 occasions its 2 per cent goal.
The amount of products purchased by shoppers was nearly all the way down to pre-pandemic ranges from a peak of almost 10 per cent above it in April 2021.
Nevertheless, shoppers nonetheless spent 14 per cent greater than in February 2020, earlier than the Covid-19 disaster, due to hovering costs.
All major sectors fell over the month, however non-food shops had been the most important driver. That is due to giant gross sales drops in shops, down 2.7 per cent, family items shops, down 1.1 per cent and clothes shops, down 0.6 per cent.
Notable declines in sports activities gear, furnishings and lighting give “a sign of the forms of gadgets shoppers push to the underside of their precedence listing in tough occasions,” mentioned Sophie Lund-Yates, analyst on the monetary companies firm Hargreaves Lansdown.
On-line gross sales additionally fell sharply, by 2.6 per cent, with meals being the third driver of the month-to-month fall.
Whereas meals gross sales are significantly affected by the reopening of the hospitality sector, the ONS reported that “in latest months, retailers have highlighted that they’re seeing a decline in volumes bought due to elevated meals costs and value of residing impacts.”
Gasoline gross sales additionally dropped sharply, by 1.7 per cent, and had been 9 per cent under their pre-coronavirus ranges, reflecting the impression of hovering costs on the pump on automobile journeys regardless of some easing in August costs in contrast with the earlier month.
Lynda Petherick, retail lead on the consultancy Accenture, mentioned that “with a tough winter to come back, it is going to come as a fear to retailers that consumers have already reined of their spending regardless of the new summer time”.
Extra reporting by Adam Samson in London
