UK consumer spending disappoints once again

A disappointing set of retail sales numbers from the British Retail Consortium (BRC), which as the new UK Labour Government begins its 5-year term of office, very much highlights just how difficult it may be for it to fulfil its central policy objective of boosting UK growth.

Today’s report showed annual like-for-like sales falling by -0.2%, down from the +0.7% reading seen in May, and significantly below the expected reading of +0.8%. As has been a common theme so far this year, the weather again played a key role in dampening consumers’ appetite to spend, with the cooler June weather seen in the first half of the month dulling sales of summer clothing and footwear, plus other seasonal items such as gardening products. Despite sales of electrical products increasing, non-food sales overall fell by -2.9% on a 3-mth-on-3mth annual basis. Compounding the poor performance is the fact that June 2023 was the hottest June on record, artificially boosting sales, which has only served to magnify further the difference between the two months.

Looking at the average rate of sales growth over the March to June period shows an annual growth rate of just 0.1%, much weaker than the average annual growth rate seen when using the January and February figures (1.2%). Clearly the inclement weather that has been experienced in the UK (both wetter and cooler) is persuading shoppers to stay at home, and the new Government will likely find itself facing increasing pressure from the retail sector to both boost the economy and confidence, if spending patterns are to be sustainably increased. The BRC report notes that many of its members have now largely exhausted their ability to cut costs or offer further sales promotions (basically discounting), raising the real risk of increased store closures being seen going forward.

On a real basis, the underlying trend in sales growth appears to be not quite so bad. The BRC shop price data released end-June showed shop price inflation falling to just 0.2% in the year to June, the 13th month in a row it has fallen, down from a high of 8.98% in May 2023 and from 2.92% at the start of this year. Taking account of these numbers means that real sales growth in June was -0.4%, an improvement on the approximate -1.6% print for January. So, things are moving in the right direction, but the picture remains downbeat.

Going forward, the key factor that could boost sales in the near-term appears to be the weather. But alongside this, the real growth being seen in wages, the impact of the November and January cuts in National Insurance contributions, the inflation-adjusted uplift in social security benefits and the 9.8% increase in the National Living Wage, should all continue to feed through and boost the propensity of consumers to spend. However, this ‘boost,’ while often trailed, has yet to appear, raising further questions about just how confident consumers really are to commit to additional spending. Overall, therefore, there are reasons for suggesting that the outlook for sales should improve over the course of H2; but equally for concerns to be growing that household spending may remain subdued for an extended period. And with domestic consumption accounting for around 63% of UK GDP last year, the hopes the new Labour Government has of boosting growth may ultimately turn out to be just that – only hopes.