In September, UK retail sales defied expectations by rising, despite predictions of decline amidst economic uncertainties.
- Retail sales increased by 0.3% in September, surpassing the anticipated 0.4% decrease, following a strong 1% rise in August.
- Technological items saw a significant boost in sales, counterbalancing a weaker performance in supermarkets.
- With approaching tax increases, consumer confidence wavers, as indicated by a drop in the GfK consumer confidence index.
- Economic prospects might improve with expected interest rate cuts, though consumers remain cautious.
In an unexpected turn of events, UK retail sales rose by 0.3% in September, as reported by the Office for National Statistics (ONS). Analysts had previously projected a 0.4% decrease for the month. This growth builds on a robust 1% increase in August. The rise was largely contributed by increased consumer spending on technology, while supermarket sales experienced a decline. The reluctance to purchase luxury food items highlights the public’s growing concern over rising costs. Despite these gains, retail transactions remain 0.2% below pre-pandemic levels, emphasizing ongoing challenges within the sector. However, the overall sales increased by 1.9% over the three months leading up to September, marking the joint largest quarterly rise since July 2021. Hannah Finselbach from the ONS commented on the noteworthy increase in tech store sales amidst weaker supermarket figures driven by bad weather and consumer caution.
The surge in sales can partly be attributed to factors such as record rainfall and early winter chills, which spurred demand for warm clothing, according to Erin Brookes of Alvarez & Marsal. Brookes noted that while consumers are still mindful of costs, household budgets are less constrained compared to a year earlier. However, uncertainty surrounding the upcoming autumn budget continues to loom, potentially affecting consumer confidence. Oliver Vernon-Harcourt from Deloitte highlighted a ‘back-to-school boost’ that supported September sales, with strong performances in computers, clothing, and footwear. Nevertheless, he cautioned that while sales of smaller non-essential items buoyed overall sales values, consumers held back on significant big-ticket purchases.
The increase in retail spending occurs just before the presentation of Chancellor Rachel Reeves’s first budget on October 30, with anticipated tax hikes and spending cuts totaling £40 billion. Both Reeves and Labour leader Sir Keir Starmer have emphasized the critical nature of making tough decisions in light of higher-than-expected in-year spending inherited from the past Conservative administration. Such remarks have caused anxiety among consumers and businesses regarding the possible economic repercussions. The GfK consumer confidence index, which fell to minus 20 in September from minus 13 in August, reflects these apprehensions about the cost-of-living crisis and potential budget measures.
Nevertheless, there is optimism that the economic outlook could further brighten in the months to come. The Bank of England is anticipated to cut interest rates by 25 basis points in both November and December, which would lower the base rate to 4.5%. September witnessed inflation at a three-year low of 1.7%, providing some relief to household budgets. With wage growth exceeding 4% and outpacing inflation, living standards are gradually enhancing. However, many consumers have opted to enhance their savings since the pandemic, which could constrain discretionary spending. As the year progresses, the balance between cautious saving and increasing wages will be critical for retailers.
As the UK retail sector navigates economic uncertainties, impending interest rate cuts may further shape consumer spending patterns.
