UK consumption stalling

Retail sales continue to slow as still rising prices and higher interest rates take their toll

By Stuart Cole | @Stuart Cole | 7 November 2023


Today’s retail sales figures from the British Retail Consortium continue to paint a picture of subdued consumer spending, suggesting UK households are continuing to struggle in the face of higher prices and increasingly restrictive financial market conditions. The latest numbers showed like-for-like annual sales rising by 2.6% in October, a postive reading but still representing a slowdown from the 2.8% figure seen last month. Furthermore, the figures are not adjusted for inflation, suggesting that despite the increase, the real picture is one of falling volumes once inflation is accounted for.


A further sign that momentum in consumer spending is fading was painted by the Total Sales figures, which showed an increase of 2.5% in October, beating the 1.6% figure seen this time last year but below both the 3-mth average growth rate of 3.1% and the 12-mth average growth rate of 4.2%. Even though households are now facing a lower inflationary environment than 12-months ago (annual headline CPI peaked at 11.1% in October 2022, compared to the current rate of 6.7%), the price rises of the past year have not gone away – and prices are continuing to rise, just not quite so fast. The picture presented is one of fragile consumer confidence and brittle household budgets. And as the cushion of the excess savings build up during the covid pandemic dwindles and the impact of higher interest rate rises starts to be increasingly felt, it is difficult to see this downbeat picture changing any time soon.

However, some glimmers of hope are provided by the fact that wages are now rising faster than CPI, providing a real boost to disposable incomes. And the impact of the Bank of England’s interest rate rises is being staggered as households on fixed rate mortgages will not feel the full impact of the hikes until they need to roll over onto a new fix. Also, lower income households – who typically spend a larger proportion of their income – will receive their second Cost of Living grant this month, worth £300 per household. However, with energy bills set to rise as we approach the winter heating season and job security starting to fade as slack grows in the labour market, the prospect of households choosing to try and save more or repair balance sheets, rather than increasing spending, looks a fair prospect.

Overall, therefore, the outlook for the UK retail sector continues to look challenging and will remain hostage to the fortunes of the macro environment. The surprising strength of consumer demand that has kept many retailers afloat and largely been responsible for ensuring UK growth has remained positive this year, no longer looks to be there. And if spending continues to fall as suggested today, the forthcoming run-up to this year's Christmas trading season could be one of the most challenging – and important – many retailers have faced since before the pandemic.