Latest British Retail Consortium report paints a picture of a rain-soaked hit to spending in February

A disappointing set of retail sales data from the British Retail Consortium (BRC) this morning, showing sales growing by 1.1% over the month, weaker than the 1.2% reading seen in January and a substantial fall from the 5.2% figure seen in February 2023, and below both the 3-mth/12-mth average growth rates of 1.4%/3.1%. Certainly consumer spending was hampered by the very wet weather recorded over the month (southern England experienced the wettest February on record). But even taking this into account, the numbers paint a dismal picture regarding the strength of UK consumer demand, and particularly so when you take into account the fact that the BRC numbers are not adjusted for inflation, meaning that if inflation falls going forward as expected, then so the BRC sales numbers will concomitantly fall at the same time.

The figures will be worrying for the UK government as they suggest that the cuts to national insurance that took effect from January have not delivered the hoped for meaningful boost to consumption they were meant to engineer, the extra income likely being used to finance essential expenditure such as higher mortgage costs and increased travel fares, as well as boosting savings balances to provide a larger cushion against what continues to be for many an uncertain economic outlook. It suggests that any room the Chancellor finds for easing the tax burden in tomorrow’s budget might be better spent on other supply side reforms.

On the brighter side, however, things may not be quite so dismal as they first appear. The official UK retail sales figures have come in around 2% stronger than the BRC figures over the past twelve months, while the near 10% rise in the national living wage that takes effect next month, alongside any additional personal tax cuts tomorrow’s Budget is almost certain to deliver, will collectively provide a further boost to disposable household incomes; the key question will be how much of this additional income is spent as opposed to saved, particularly in the face of a weakening labour market.

Overall, today’s numbers continue to paint a picture of an economy struggling to find any meaningful growth momentum, with consumer activity remaining constrained by the on-going cost of living crisis, the highest tax burden for a generation, still high interest rates and fears of weakening labour demand. And even though both inflation and interest rates are expected to fall going forward and household finances improve, any expectations that these things will lead to a material pick-up in consumption look optimistic at the current juncture.