20 October 2023
The latest ONS figures show retail sales volumes plummeted across the board, falling 0.9% in September, driven by household goods (down 2.3%) and clothing (down 1.9%).
Jacqui Baker, head of retail at RSM UK and chair of ICAEW’s Retail Group, comments: ‘September’s Indian Summer saw clothing hit hardest with a double whammy. Price sensitive consumers tightened their spending ahead of the Golden Quarter to hold out for Black Friday deals and the unseasonal weather put consumers off refreshing their Autumn/Winter wardrobes.
‘Although inflation pressures are easing, consumers are holding back from splashing out on big ticket items such as household goods. Looking at the bigger picture, sales volumes in September are at similar levels to 2018, meaning retailers have seen little volume growth over the five-year period.
‘Consumer confidence fell sharply in October, with remortgaging at the forefront of many consumers’ minds. This will continue to weigh heavily on consumer spending, meaning retailers will have to work hard to come out on top in this year’s Golden Quarter.’
Thomas Pugh, economist at RSM UK, added: ‘The sharp fall in retail sales in September makes it increasingly likely that GDP flatlined or even fell in September. That would mean that GDP as a whole contracted in Q3. Admittedly, we doubt this marks the start of a recession. GDP should rebound in Q4 as energy prices fall and a large cost-of-living grant is paid to low income households. But growth is likely to be subdued for another year, we are expecting growth of around 0.2% a quarter until the end of 2024, so it wouldn’t take much of a deterioration to create a recession.
‘That said, there are reasons to be hopeful about the outlook for consumer spending. Real wages are now rising and should increase sharply over the next year as inflation drops more steeply than wage growth. That should support consumer spending power over the next year.
‘The problem is that with consumer confidence falling back very sharply in October and savings in real terms back to their pre-pandemic level, many consumers will choose to save any additional income rather than spending. What’s more, for a large portion of households, any increase in incomes will just be eaten up by higher mortgage and rent costs, reducing their disposable income. As a result, while we do expect consumer spending and retail sales volumes to gradually rise, we aren’t expecting the increase in real wages to lead to a boom in consumer spending.’