Budget concerns loom over retailers as Reeves advises against imposing tax increases on the retail sector
In September, the British retail sector found itself navigating a complex economic landscape, with some positive signs and others that hinted at potential difficulties ahead.
According to the Office for National Statistics (ONS), retail sales surpassed expectations in August, showing a 0.5% increase compared to July. However, this growth was not reflected in sales volumes, which actually decreased by 0.1% on a three-month basis.
The GfK's Consumer Confidence Index dropped two points to -19 in September, indicating a decline in Britons' expectations for their own personal finances over the next 12 months. The index fell one point, landing at four, and the Major Purchase Index, a measure of confidence in buying big ticket items, dropped three points to -16. These figures suggest that consumers may be hesitant to make large purchases, which could impact the retail sector's performance in the coming months.
Looming tax rises in November's Budget are expected, which could further dampen consumer spending. The retail sector has been slashing thousands of jobs in response to higher costs, another factor that could influence consumer behaviour.
Despite these challenges, there are some positives to be found. Past interest rate cuts are helping to restore consumers' purchasing power. Households have sizeable savings buffers that could support discretionary spending. Wage growth, though easing, remains historically strong.
Martin Beck, chief economist at WPI Strategy, has stated that retailers can take heart from these positives. Shifting consumer preferences suggest a full-blown retail revival will be hard to sustain, but with careful planning and adaptability, retailers may be able to weather the storm.
In August, clothing sales were high due to the warm weather, and specialist shops like butchers and bakers also saw increased demand. However, in the last quarter of 2021, no specific companies or industries that outperformed expectations despite declining consumer confidence are explicitly identified. The sources mainly discuss US consumer sentiment trends and other topics without directly addressing the UK retail sector's company or industry performance during that period.
As the British retail sector continues to evolve, it will be interesting to see how these mixed economic signals play out in the coming months. Retailers will need to remain agile and adaptable to navigate the challenges and capitalise on the opportunities that lie ahead.
