Consumer spending fell in real terms this September, compared to a year earlier, as customers shy away from spending in the current economic gloom, according to figures released by the British Retail Consortium (BRC) and KPMG. The total sales value rose marginally, by 0.3 per cent, but this was offset by inflation, which has risen to around 4.5 per cent.
Larger and discretionary items were the most hit, as customers trim their expenditure ahead of the crucial Christmas shopping period. Sales of clothes were also hit by an unseasonal hot spell, the BRC said, which dampened hopes of a reversal of the summer’s weak numbers. Toiletries, cosmetics and homeware improved.
“However, with consumers’ incomes being squeezed from all sides, many shoppers continue to steer clear of big-ticket items,” Helen Dickinson, KPMG’s head of retail, said in a statement accompanying the report. “As we are entering the crucial season in the run-up to Christmas the outlook may be described as ‘hopeful’ but that’s as good as it gets I am afraid.”
The first week of October saw confidence in the retail sector hit by weak domestic sales figures at Tesco and Sainsbury’s, as well as profit warnings and poor numbers at other high street mainstays, including Mothercare, which reported a 10 per cent drop in sales on Monday. The former introduced a £500 million investment in price cuts in September as it attempts to mitigate growing unease amongst British consumers.
“The likelihood is that consumers will be very cautious in their spending over the rest of 2011 and likely early 2012 at least as their purchasing power remains under severe pressure from high inflation, muted wage growth and tighter fiscal policy,” Howard Archer, chief UK and European economist at IHS Global Insight, wrote in a note to clients ahead of the release of the BRC numbers.
“Indeed, a sharp jump in utility charges in August is adding to the squeeze on many consumers. Meanwhile, unemployment is rising and the jobs outlook is looking increasingly worrisome.”
With around two-thirds of the UK’s gross domestic product (GDP) based on consumption, the effect of the retail slump could be felt in the country’s growth figures again. The Office of National Statistics last week revised the country’s third quarter growth down to 0.1 per cent from a forecast 0.2 per cent, acknowledging at the time that it’s declaration in the summer - that “special factors” including the Royal Wedding and the Japanese Tsunami had caused a technical dip - had been supplanted by fundamental growth concerns.
“Short-lived factors such as the weather and discounting are influencing sales not any fundamental change in how customers are feeling. Hot weather at the end of September boosted spending on food and drink, but clothing sales slumped as the sun undermined interest in winter ranges,” Stephen Robertson director general of the British Retail Consortium, said in a statement.
“As we head into the year's most important trading period, we need a return of optimism. That requires people to feel that next year they will see some payback for the current pain."