Consumers hold back on spending as Budget nervousness builds
The latest ONS retail sales figures show volumes fell by 0.4% in September, driven by non-store retailing (down 2.2%), clothing and footwear (down 0.9%), and household goods (down 0.5%).
Jacqui Baker, Partner and Head of Retail at RSM UK, said: “Unseasonably warm weather in September meant clothing suffered as consumers held off from buying autumn/winter outfits. Consumers are still on the hunt for a bargain, particularly as disposable incomes remain under pressure, and nervousness builds ahead of the Budget.
“It’s been a slow start to the Golden Quarter which is likely to continue as people delay purchases until Black Friday promotions in November. Retailers must hold firm on discounting as a weak Golden Quarter will put them in an even tougher position next year.
“With consumer confidence plunging to -24 in October, undoing all of the progress made over summer, all eyes are now on the Budget to provide much-needed clarity, certainty and support. While retailers want to see initiatives that reduce the cost burden in the industry, it’s important consumers also receive a boost to encourage them to get out and spend, which would benefit the whole economy.”
Thomas Pugh, Chief Economist at RSM UK, added: “The drop in retail sales in September and sharp fall in consumer confidence in October raises the risk that the economy’s recent run of resilience might be coming to an end.
“At least part of the drop in retail sales in September can be attributed to warm weather dampening demand for winter clothing, which might reverse in October. But retailers also reported lower footfall and customers cutting back, suggesting cost of living pressures might be starting to bite. Indeed, the slump in consumer confidence in October suggests that higher inflation and borrowing costs are now having a bigger impact on confidence and spending. Nervousness ahead of what seems likely to be another tax raising Budget, may also be playing a role.
“Unfortunately, those cost of living pressures are only going to get worse over the winter. Utility bills are likely to rise by 20% in January, and inflation will peak at around 4.5%. That will mean another squeeze in real incomes, unless there are substantial measures at the Budget, which looks unlikely. Overall, consumers face a challenging winter, but high savings and the economy’s resilience so far, suggests spending growth will slow rather than collapse.”