July's washout dampens retail sales

In line with the six-point drop in consumer confidence in July 2023, the latest ONS figures show retail sales volumes fell by 1.2% in July, driven by household goods (down 3.8%), food sales (down 2.6%) and clothing (down 2.2%). Excluding fuel, this month’s figures are the biggest decrease in retail sales this year.

Jacqui Baker, head of retail at RSM UK and chair of ICAEW’s Retail Group, comments: ‘July’s wet weather dampened consumer demand for summer clothing leading many retailers to slash their prices, with a fall of 0.5% – the biggest drop in over two years (excluding fuel) – due to fears they’ll be left with too much stock again. However, consumers switched to online shopping to avoid the rain, with sales up 2.8%. Food sales also tumbled as households opted for dining indoors at restaurants and pubs instead of barbequing and entertaining outdoors.

‘While it’s great news that international travel is back, there hasn’t been the spend to match, due to the UK’s decision to abolish tax-free shopping for overseas travellers. Many visitors come to the UK as part of a European tour during the summer, so money that would’ve been spent here is being lost to European centres such as France and Italy – hitting retailers and the wider UK economy.’ 

‘The trade-off between products and experience continues, and its experiences that will have come out on top last month with Barbenheimer drawing in the crowds and the wet weather tempting consumers to take advantage of last-minute holiday deals in their quest for some sunshine.’ 

Thomas Pugh, economist at RSM UK, added: ‘While the wet weather bears some responsibility for the weakness in retail sales in July, underlying demand also appears to have softened at the start of Q3. 

‘The worst is probably behind retailers. However, trading will remain difficult for the rest of the year. Much of the increase in consumers’ real incomes from falling inflation will be eaten up by higher mortgage and rent payments. What’s more, consumer confidence fell sharply in July suggesting that the unrelenting headlines about mortgage rates are taking a toll on consumers, meaning many will choose to use any extra income to pay down debt rather than splurge on retail therapy.’  

‘Overall, we expect retail sales volumes to moderately tick up over the rest of the year, but a greater rebound will have to wait until the economy improves more broadly, which probably won’t be until the second half of 2024.’