UK retail spending growth drops in run-up to Christmas

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Growth in UK retail and consumer spending slowed last month to rates well below inflation, according to sector data that points to households cutting purchases ahead of the busiest shopping season of the year.

The value of retail sales rose by an annual rate of 2.5 per cent in October, down from 2.7 per cent in September and well below the 12-month average of 4.2 per cent, the British Retail Consortium said on Tuesday.

The figure from the trade body compares with September’s headline consumer price inflation reading of 6.7 per cent, indicating households are buying lower volumes of goods even if they are spending more, a pattern seen since the second half of 2021.

Weak spending does not bode well for economic growth, of which it is a large component, or for retailers, who are hoping for a boost in the run-up to the festive period.

The Bank of England last week forecast no growth in 2024 as the impact of high interest rates feeds through to households and businesses, and the BRC data suggests high prices and the central bank’s sharp rise in interest rates since the end of 2021 are both hitting demand.

Paul Martin, UK head of retail at advisory group KPMG, which compiled the figures for the BRC, said shops faced a “challenging Christmas”. Higher inflation and mortgage payments coupled with dwindling savings from the pandemic and bigger energy bills meant “beleaguered consumers are thinking very carefully about how they spend their money”.  

The value of non-food sales contracted by 1 per cent in the three months to October, down from a 12-month average of 0.6 per cent growth, BRC data showed.

The figures chime with statistics published on Tuesday by Barclays, which showed that consumer card spending grew by 2.6 per cent year on year last month — the smallest uplift since September 2022.

The payments company, which monitors almost half of all UK credit and debit card transactions, reported that spending on household goods dropped by an annual rate of 6.5 per cent, with furniture and home improvement stores registering declines of more than 7 per cent.

Restaurant spending fell by 10.3 per cent, but pubs, bars and clubs reported an expansion boosted by England’s performance in the Rugby World Cup.

Jack Meaning, chief UK economist at Barclays, said October’s data showed that households were “pulling back from discretionary spending and are increasingly worried about their future ability to spend”.