UK consumer spending ends 2023 on a disappointing note
Today's retail sales figures bring a disappointing end to what has been a challenging 2023 for retailers
A disappointing retail sales number from the British Retail Consortium today, showing like-for-like sales rising by only 1.9% in December. This is down from the 2.6% increase seen in November and considerably lower than the 6.9% increase seen in December 2022, and brings a disappointing end to what has been a challenging 2023 for retailers. It further suggests that the much hoped for boost to spending from the Christmas holidays failed to materialise, households remaining cautious regarding making big purchases as weak consumer confidence continued to hold back spending. Despite the fall in inflation seen over 2023, the cut in National Insurance to take effect from January and wages finally showing real terms increases, the constant barrage of economic challenges that have faced consumers over the past couple of years are very much coming home to roost.
Although the BRC figures are not necessarily the best guide to the official retail sales numbers to come, they do chime with other measures of consumer activity: the Confederation of British Industry’s own Distributive Trade survey fell to -32 in December, from -11 in November, while the High Street Sales Tracker numbers from BDO showed non-food sales falling by -2.6% in December, accelerating from the -0.3% decline seen in November. On the back of the evidence to date, the outlook for the official December retail sales figures to be published on 19 January suggests they will also show spending stalling.
Worryingly for retailers, the weak spending figures have come despite a background of heavier and more sustained promotional campaigns, which are margin dilutive; today’s numbers suggest retailers will need to continue to cut margins down to the bone if consumers are going to be encouraged to raise spending going forward. And this looks set to become increasingly challenging, with business rates set to increase in April and costs rising on the back of the current disruptions being seen to freight shipping to Europe via the Red Sea.
However, the picture going forward is not necessarily completely downbeat. Real household disposable incomes should increase as inflationary pressures ease and wage increases exceed price rises, while the heavy drag on consumption stemming from mortgage re-financing over 2023 looks set to ease this year as interest rates start to fall. And an expected recovery in consumer confidence, as both interest rates and the tax burden start to fall, should encourage households to increase spending again. However, with the immediate growth outlook for the UK looking difficult still, any recovery in spending activity may be tepid and slow to gather any meaningful momentum, with the focus on paying down debt and replenishing savings stocks likely to be prioritised by households over increasing discretionary spending. Accordingly, as we move into 2024, retailers are likely to continue to see significant downwards pressures on demand for the next quarter at least.
Households remain cautious regarding making big purchases as weak consumer confidence continues to hold back spending