Retail sales tick up again, but budget uncertainty threatens to derail momentum
The latest ONS retail sales figures show volumes were up 0.5% in September, driven by non-store retailing (up 1.5%) and household goods (up 1.2%).
Jacqui Baker, head of retail at RSM UK and chair of ICAEW’s Retail Group, said: “Retail sales picked up again in September, as consumers spruced up their homes as we headed into autumn and the new iPhone release boosted technology sales. Despite incomes being squeezed, households continue to spend as demonstrated by a run of positive sales for the last four months.
“While sticky inflation and budget uncertainty didn’t hit retail sales last month, there’s every possibility constant speculation could supress consumer confidence in the lead up the budget. Households could be tempted to put the brakes on spending, so retailers may be entering a more challenging period during what should be their busiest time of the year. Retailers will be hoping they can delay heavy discounting until Black Friday sales in November, but some may not have a choice.
“Until the outlook for the economy improves and consumers feel a bit more optimistic, we could see more choosing to save rather than splurge. Even if given an unexpected £1,000 windfall, a third of Gen Z consumers (34%) would choose to save or invest rather than spend it*.
“The upcoming budget is the chancellor’s opportunity to kickstart the UK economy and relieve pressure on the retail sector, including the current business rates burden. Until then, retailers are currently stuck in limbo, with many putting investment and hiring decisions on hold as they wait for the outcome of the budget.”
Thomas Pugh, chief economist at RSM UK, added: “Retail sales volumes shrugged off any budget-generated uncertainty in September growing by 0.5% m/m, marking the fourth consecutive monthly rise. The big question now is whether the increasing speculation around the budget in October and November will disrupt this trend. The unexpected rise in consumer confidence in October to -17 up from -19 in September suggests budget speculation didn’t have much of an impact on confidence this month.
“That said, the outlook for consumer spending looks more challenging over the next few months. Rising inflation combined with slowing wage growth means that real wage growth has already slowed from 2.1% in January to just 0.6% in August and will probably slow further over the rest of the year. What’s more, the likely fiscal consolidation coming in the budget will probably be in the range of £30bn, most of which will fall on households, dragging on disposable incomes.
“However, there are plenty of reasons to be optimistic. There are now likely to be further interest rate cuts by early next year, which should help to offset some of the budget pain. What’s more, the household saving ratio is extremely high, which means there is room for households to save less to offset the impact on disposable real incomes, especially if a credible budget can prevent another damaging bout of budget speculation next year.”