Cost of living: Shock fall in UK retail sales stokes recession fears

Both the value and the volume of sales in Britain’s retail sector have slipped back for the first time since the end of 2021 as shoppers tighten their belts, heightening recessionary fears.

Retail sales volumes fell by 1.6 per cent in August, more than the 0.5 per cent expected by analysts, building on a downward trend that started around a year ago when Covid-19 restrictions were lifted for the hospitality sector.

Since then volumes have eased as people switch from buying food and drink in shops to going back to local pubs and restaurants.

But the amount that people spent at retailers rose by 8 per cent between July 2021 and July this year. Then, in August, this dropped by 1.7 per cent from the month before, according to the latest figures from the Office for National Statistics (ONS).

Lisa Hooker, industry leader for consumer markets at professional services giant PwC, said: “After July’s surprise month-on-month increase, retail sales reverted to recent trend, with every category of the sector seeing volume declines. On an annual basis, this decline has been masked by inflation.

“As we approach the critical ‘Golden Quarter’ in the run up to Christmas, retailers will be looking with anticipation to the outcome of next week’s mini-budget.

“The confirmation of an energy price cap and possibility of tax cuts may boost wavering consumer spending, but businesses will also be looking for help to alleviate soaring utility costs of their own.”

The ONS said that food shops, non-food shops, online retailers and fuel sellers had all registered declines in August - the first time since July 2021.

As household budgets come under pressure shoppers are becoming more choosy about what they place in their baskets. Picture: Greg Macvean

Non-store retailers - largely the online sellers - saw volumes drop by 2.6 per cent in August, giving back some of the ground they gained during the pandemic. But sales in the sector are still a quarter higher than before lockdowns.

Sophie Lund-Yates, lead equity analyst at investment firm Hargreaves Lansdown, noted: “There is the possibility these figures suggest the UK is already in recession. Sales were down in all key sectors, including food, fuel and non-food stores.

“There was a notable decline in sports equipment, furniture and lighting. This gives an indication of the types of items consumers push to the bottom of their priority list in difficult times, and has some tough connotations for members of these industries.”

Earlier this week it emerged that Scottish retail sales had nudged higher last month, but non-essential spending is likely to come under pressure in the run-up to Christmas as purse strings are tightened.

Releasing its latest sales monitor, the Scottish Retail Consortium (SRC) said total sales north of the Border increased by 6.2 per cent in August, compared with the same month last year. However, adjusted for the effects of spiralling inflation, the year-on-year rise was just 1.1 per cent.

Paul Martin, partner and UK head of retail at KPMG, which helps to produce the monthly sales monitor, said: “Many retailers will be bracing for consumers tightening their belts at a time when their own margins are under pressure from rising costs.”