The latest ONS retail sales figures show volumes fell by 0.4% in April excluding fuel, driven by clothing and footwear (down 2.4%) and non-store retailing (down 2%).

Jacqui Baker, Head of Retail at RSM UK said: “Consumers pulled back on spending in April as the Iran war continued to drag on sentiment. The main glimmer of hope was health and beauty, with shoppers indulging in small, feel-good luxuries to get them through current uncertainty and the tough economic outlook.

“The weak labour market as employers cut back on employment and pay rises will also add to current nervousness. We may see more consumers trading down and opting for own-brand products as they focus on value, a similar trend that played out during the Covid pandemic.

“The decline in summer holiday demand due to the ongoing Middle East conflict will also have a knock-on effect on the retail industry. Not only will fewer people going away result in less retail spend, but so will a reduction in inbound tourism, hitting the leisure industry too.

“However, despite facing one shock after another, households have proved to be relatively resilient with consumer confidence improving to -23 in May. As we look towards the summer months, the hope is that sunnier weather and World Cup fever will encourage people to get out and spend. Having already faced a tough couple of years, exacerbated by soaring costs, the last thing that retailers need is for consumers to completely batten down the hatches.”

Thomas Pugh, Chief Economist at RSM UK, added: “The 1.3% drop in retail sales was driven by fuel which collapsed by 10.2%. Indeed, consumers front-ran price increases in March at the start of the Iran war so some payback was always likely. Excluding fuel, sales fared slightly better, dropping by 0.4%.”

“Looking ahead, consumer confidence improved in May, but consumers’ major purchasing intentions, which is a better indicator of spend, fell to the lowest level since October 2024. Even if consumers are feeling slightly more optimistic about the outlook for now, inflation will jump again in July due to rising utility bills and drag on real household incomes. What’s more, uncertainty will remain high throughout the summer, which will likely depress confidence in the coming months.

“Higher interest rates will also squeeze discretionary incomes as households reset mortgage deals. The average household remortgaging now could be £150 a month worse off than in February. Given real household disposable income was set to grow by less than 1% this year anyway, a sharp increase in inflation would see real incomes stagnate or even shrink once again.

“Admittedly, the household saving rate is elevated going into the crisis meaning that consumers can save a bit less to cushion the blow to their lifestyles, so the full impact on income is unlikely to flow through into spending. Indeed, this is what happened in 2022 when the saving rate dropped sharply. But the longer the crisis goes on for, the more likely consumers are to adjust spending habits in response as consumer confidence wanes. That sets a much tougher outlook for retailers than we were considering before the war.”

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