UK consumer spending remains weak in run up to Christmas

By Stuart Cole | @Stuart Cole | 5 December 2023


The latest retail sales figures from the British Retail Consortium paint a worrying picture for the UK retail sector in what is traditionally its busiest time of the year. The figures for November showed sales recovering modestly over the month, up 2.7% compared to the 2.5% reading seen in October and marginally stronger than the 2.6% 3-month average growth rate. However, given that the September and October readings were negatively impacted by the adverse weather conditions seen over both months, some pick-up in spending in November was always likely, and the concern will be that the recovery is not as strong as might have been expected.

The boost to spending attributable to this year’s early Black Friday event appears to have lost momentum quickly, with households instead choosing to hold back on Christmas spending and culminating in non-food sales being down overall so far year-on-year. With under three weeks to go now until Christmas Day itself, retailers will be anxiously hoping for a last-minute spending splurge; although with the cost-of-living crisis continuing to test consumer resilience, many stores may have to resort to large January sales to shift unsold stock, the impact of which will be a further dent in already tight margins. Indeed, with the BRC figures not adjusted for inflation, November’s sales figures already represent a fall in the volume of goods sold, leaving stores already facing excess stock levels.

However, the outlook going forward does present some glimmers of optimism. The slowdown finally being seen in the pace of price rises, combined with the real growth now being seen in wages, will provide a real boost to household disposable incomes. And for lower income households, the resumption of the Cost-of-Living grants is expected to boost their real disposable incomes over Q4 by just over 1%, the bulk of which will likely be spent. As such, some recovery in sales over December looks plausible. Looking ahead even further still, assuming CPI continues to fall in line with Bank of England forecasts, the Office for Budget Responsibility calculates that the changes made to tax rates and benefits in last month’s Autumn Statement should lead to a boost in disposable incomes - and concomitantly spending - of 0.6% by 2024/24, while the extra deposit income now being earned on savings accounts and the reversal starting to be seen in mortgage rates, should both further contribute to additional household spending.

But with retailers facing increases in business rates in 2024, plus the biggest rise on record in the National Living Wage, their ability to keep prices low for consumers will be limited; whether they are able to keep any price rises beneath the increases in disposable incomes outlined above may well determine which ones survive and which ones are forced into administration.