Consumer spending is defying expectations and holding up better than feared amid sky high inflation, a new survey published today reveals.
Retail sales volumes dipped to net a balance of minus four per cent this month, slightly lower than June, according to the Confederation of British Industry (CBI).
But, the marginal drop was much better than the 10 per cent fall forecast by the City.
Experts have warned households could soften spending in response to their living standards suffering a historic blow from rising living costs.
Inflation soared to a fresh 40-year high of 9.4 per cent last month, but may top 12 per cent in October, meaning consumers will be under even greater pressure to maintain normal spending levels in the coming months.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, thinks government support to cushion the cost of living crisis will push official retail sales figures from the Office for National Statistics into positive territory in the three months to September.
The higher national insurance threshold, a £400 grant to all households to offset higher energy bills and additional payments to the poorest will boost real disposable income.
“This should feed through to retail sales, given that the incomes of credit-constrained low-income households will rise the most,” he said.
However, Tombs thinks sales will shrink through to the second quarter of next year after that short-term bump. Retailers surveyed by the CBI think sales will drop to minus 14 per cent next month.
Martin Sartorius, principal economist at the CBI, said: “Retail activity continues to take a hit as consumers struggle to cope with the effects of the cost-of-living crisis.”
“For wholesalers, high inflation and weakening economic momentum has meant that sales volumes have now fallen following a solid period of growth stretching back to March 2021,” he added.
The CBI’s data indicated consumers are beginning to resist higher prices.
Some 29 per cent of retailers said their stock levels were too high in relation to expected sales, the biggest level since July 2020 when the UK was still in the teeth of the early stages of the pandemic.