March rains on retailers

The latest ONS figures show retail sales volumes have fallen by 0.9% in March 2023.

This was driven by a drop in non-food stores sales volumes of 1.3%, affected by poor weather conditions throughout the month. Food store sales also fell by 0.7% in March, and non-store retailing (predominantly online retailers) fell by 0.8%.

The only marginal increase seen was a 0.1% rise in household goods.

Jacqui Baker, head of retail at RSM UK and chair of ICAEW’s Retail Group, comments: ‘It looks like the wet March weather played its part in dampening retail sales. Consumer confidence remains below par as people are still keeping a close eye on budgets and steering away from making non-essential purchases or going out.

‘April sees retailers having to shoulder further costs associated with the latest annual rise to the national minimum wage this month, and some are being adversely affected by the business rates review.

‘However, as the economic outlook and weather begins to improve, retailers’ optimism should rise as consumers look to buy DIY, garden and fashion products. With plenty of upcoming celebrations, including bank holidays, the King’s Coronation and Eurovision in Liverpool, mega-May is all to play for.’ 

Thomas Pugh, economist at RSM UK, added: ‘The 0.9% m/m drop in retail sales keeps the risk of a recession alive. GDP as a whole needs to fall by 0.5% m/m in March for Q1 to register a contraction. Given retail sales make up around a third of consumer spending, there is clearly a significant risk that GDP falls by that much, especially as the wet weather which dampened retail sales will also depress output in other sectors of the economy such as construction. 

‘However, there are reasons to be a bit more optimistic looking forward. The impact of the wet weather will fade in April. What’s more, consumer confidence took a sharp upswing in April – pointing to higher spending, although it is still well below normal levels. Households’ finances should also start to pick up soon as inflation falls sharply but the tight labour market keeps wages high. 

‘Overall, a recession remains on the cards. But even if the economy does fall into a technical recession, it will be mild and short with the economy returning to growth in the second half of this year.’