UK retail sales slow as budget concerns curb spending

UK retail sales lost some momentum in September as wary consumers put off purchases and concentrated on the essentials. Concerns about the government’s forthcoming budget were behind the slowdown, new figures from the British Retail Consortium (BRC) show.

Overall, total retail sales increased 2.3% in September over the same month last year — after climbing by 3.1% in August and 2.5% in July. Sales at stores open for at least a year, excluding newly opened ones, also declined to 2% from 2.9%. Retailers say a mix of inflation, tax uncertainty, and unpredictable weather has put the brakes on spending.

One-quarter of consumers are holding out as Chancellor of the Exchequer Rachel Reeves gets set to unveil her first full budget in November, research shows. The new administration is attempting to strike a balance between promoting growth and fulfilling green investment promises, while also carrying an increasingly heavy public debt load.

The uncertainty is clearly having an impact on household activity, according to Helen Dickinson, Chief Executive of the BRC.

Sales at food retailers rose modestly, driven more by inflation than volume. Shoppers were increasingly trading down to cheaper brands or buying in smaller quantities, KPMG’s retail tracker said. Non-food sales, including clothing and household goods, dropped steeply — roughly 0.7% in September compared with 1.8% the previous month.

Unseasonably warm weather also impacted demand for cold-weather items, such as coats and boots. Retailers had hoped to see earlier gains from autumn collections, but consumers continue to wait until it’s more seasonally appropriate before sprucing up their wardrobes.

Shops prepare for tough ‘golden quarter’

Now retailers are entering into what is called the “golden quarter” — the all-important last three months of the year when profits are driven by Christmas shopping. But the outlook is mixed.

John Lewis Partnership Plc has unveiled its largest-ever seasonal recruitment drive, taking on 13,700 temporary workers at its department stores, warehouses, and Waitrose supermarkets. The company is well-positioned to meet its full-year profit targets, Chairman Jason Tarry said, even after reporting a loss in the first half.

Likewise, the UK’s second-biggest grocer, J Sainsbury Plc, which owns Argos, is to recruit 19,000 temporary workers to cope with the holiday season rush. The supermarket giant anticipates an explosion in online orders and in-store visits this November and December, but cautions that shoppers are likely to remain picky.

Linda Ellett, UK Head of Consumer, Retail and Leisure at KPMG, said spending remained highly targeted as shoppers remained cautious. She noted that retailers were relying on promotions and carefully planned product ranges to attract customers and boost sales in the lead-up to the Christmas season.

Technology sales offered one bright spot, with a lift from the introduction of Apple’s new iPhone and Apple Watch models in mid-September. But other discretionary categories, such as home decor and apparel, were order of magnitude slower.

Meanwhile, shop price inflation increased to 1.4% in September, up from 0.9% in August – its highest since February, according to BRC data. Higher import costs and energy prices continue to squeeze margins.

Tax concerns contribute to pressure on retailers.

Retailers are also dealing with potential tax ripple effects in Reeves’ November budget, beyond the impact on consumer spending. The government is considering changes to business rates — the property tax paid by shops — that could disproportionately hit large stores.

The BRC has cautioned that introducing a new tax band for big retailers could lead to store closures and job losses, particularly among department store chains already struggling with high costs.

Small businesses are especially vulnerable. Some warn that a further rise in business rates would push them into closure. The Federation of Small Businesses has called for the Treasury to freeze or cut the levy next fiscal year in an effort to help stop further decline on Britain’s high streets.

Retail analysts say the current slowdown illustrates a precarious balancing act for policymakers. Tax increases could threaten to erode the already fragile consumer confidence, but postponing fiscal reforms may exacerbate Britain’s budget shortfall.

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