Fears that the UK is heading for a recession this winter have intensified amid indicators Britain’s hard-pressed households are reducing spending as they save for Christmas and better gas payments.
Two month-to-month snapshots of retail exercise discovered retailers and on-line shops struggling due to client budgets being squeezed by dearer mortgages and the UK’s lingering price of residing disaster.
The British Retail Consortium – the business’s foyer group – and Barclays stated gross sales have been down in October as soon as inflation was taken into consideration.
The Financial institution of England has raised rates of interest 14 occasions since December 2021 however the downbeat stories from retailers recommend the Financial institution of England’s motion to carry down inflation has come on the expense of weaker client confidence and decrease gross sales volumes.
Barclays stated card spending rose by 2.6% within the yr to October, considerably slower than the 6.7% inflation price measured by the newest client costs index. The BRC/KPMG monitor of retail exercise stated gross sales have been up 2.5% on October 2022 however careworn its figures weren’t adjusted for inflation.
Information of the slowdown got here as the newest well being verify on the UK building sector from S&P International and the Chartered Institute of Procurement and Provide (Cips) confirmed housebuilding contracting for an eleventh successive month.
The S&P International/Cips report confirmed all three classes of building – infrastructure, industrial property and housebuilding – under the 50 stage that marks the cut-off level between a rising and declining sector. However of the three, housebuilding was the weakest, registering a rating of 38.5.
In the meantime, proof that customers are cautious of committing to big-ticket objects emerged from the newest automobile gross sales figures from the Society of Motor Producers and Merchants. These confirmed a close to 30% year-on-year leap in fleet gross sales however solely a 0.3% enhance to 62,915 in gross sales to personal consumers.
Helen Dickinson, the BRC’s chief govt, stated: “Retail gross sales development slowed as excessive mortgage and rental prices additional shook client confidence. Many households are additionally delaying their Christmas spending within the hopes they’ll seize a cut price within the upcoming Black Friday gross sales. The price of residing squeeze meant extra was spent on lower-price indulgences, resembling magnificence merchandise – the so-called ‘lipstick impact’. In the meantime, the arrival of some colder climate helped to spice up style gross sales, notably for outside put on.”
Dickinson stated retailers have been reducing costs and streamlining operations as they sought to supply an inexpensive Christmas for his or her prospects however this was being jeopardised by a £470m-a-year rise in enterprise charges dealing with retailers subsequent yr. She known as on Jeremy Hunt to freeze charges on this month’s autumn assertion to stop additional price stress from pushing up costs.
Paul Martin, the UK head of retail at KPMG, stated: “Whereas shoppers are actually working in a decrease inflationary setting in comparison with October final yr the place inflation peaked at over 11%, there isn’t a doubt that the final 12 months have taken a toll on confidence and their capability to spend. Coupled with a better rate of interest setting, dwindling Covid financial savings and the heating coming again on, beleaguered shoppers are considering very fastidiously about how they spend their cash. Because of this, the sturdy demand that has saved some retailers afloat over the past 18 months is now falling away.”
The Financial institution of England stated final week it anticipated the financial system to flatline within the second half of 2023. Threadneedle Road has pencilled in zero development for the third quarter and 0.1% growth within the ultimate three months of the yr. Official figures for the July to September interval will probably be launched on Friday.
Barclays stated shoppers had detected a brand new type of shrinkflation often known as slack-filling. Seven out of 10 buyers had seen examples of product packaging hiding pointless empty house inside, it stated.
Esme Harwood, a Barclays director, stated shoppers had been reducing again on non-essentials resembling clothes and eating places in October, with ideas turning to saving for Christmas and budgeting for winter gas payments.
“The unseasonably heat climate additionally hampered spending on indoor experiences, together with digital streaming companies and takeaways. Nevertheless, pubs, bars and golf equipment nonetheless achieved sturdy development, boosted by England’s efficiency on the Rugby World Cup, whereas the journey sector benefited from an increase in vacation bookings,” she stated.