A better than expected inflation reading, and growing consumer confidence and sales, have offered a glimmer of hope for the UK’s retail sector, as they turn their focus to the vital Christmas trading months.
According to today’s ONS figures, retail sales volumes rose by 0.4 per cent in August 2023, partially recovering from a fall of 1.1 per cent in July 2023, when customers steered clear of the high street following unusually wet weather.
A long-running Consumer Confidence Index, published by GfK also showed that expectations for the UK’s wider economy over the next 12 months saw a robust six-point increase to minus 30, 44 points higher than last September.
It’s welcome news for the thousands of British retailers who have been navigating a volatile market since inflation peaked at 11.2 per cent last October, making consumers count their pennies and steer clear of extra spending.
It wasn’t all rosy for retailers or consumers though, even with this week’s pause in interest rate rises.
Fresh figures out this morning showing that a steep downturn in services saw economic activity contract at its fastest pace since the financial crisis – outside of the pandemic – raising the chances of a recession.
In the week, the Organisation for Economic Co-operation and Development (OECD) forecast inflation in the UK will be higher than previously expected next year while growth will be lower.
But of course, the OECD has been wrong before (and so has the ONS).
“The rise in retail sales in August suggests that the economy picked up a little after the 1.1 per cent m/m fall in July,” Thomas Pugh, economist at RSM UK, said.
Pugh said there are reasons to be “hopeful” about the outlook for consumer spending as the sector heads into the Christmas season.
“Real wages are now rising and should increase sharply over the next year as inflation drops more steeply than wage growth. That should support consumer spending power over the next year.”
In recent months, the financial outlook from some of the high street’s most valued retailers, such as Next, have started to take a more positive tone.
This week, the retail behemoth said it is likely that inflationary pressures on selling prices and operating costs will continue to ease, as it raised its profit guidance for the third time this year.
“In reality, we were overly cautious about the prospects for sales in the current year, we underestimated the support nominal wage increases, and a robust employment market, would give to our top line,” the retailer said.
“Sales are better than expected; Online service has significantly improved; costs are lower than expected and, although it is early days, and there have been bumps along the road, all three streams of new business are showing signs of promise.”
Struggling retail vessel the John Lewis Partnership, also said losses before tax and exceptional items fell from £66.8m to £54.5m in the half year when compared to the same period last year.
Dame Sharon White, said that the company would be pinning its hopes on the festive period – and its iconic Christmas advert – in an attempt to ramp up sales on final time before the year ends.
“We typically make most of our profit in the last three months of the year so a successful peak is always critical,” the retail boss said in a statement.
The boss of homeware retailer Dunelm, also said this week that a cool down in easing freight costs which would support its margins, in the months ahead.
The blankets and furnishings seller reported “record” sales of £1.64bn, in its preliminary results, rising up 5.5 per cent from last year’s figures, as the homeware retailer was bolstered by cost reductions.
Nick Wilkinson, chief executive officer, told markets this week: “In a period of extensive economic uncertainty, we have maintained our focus on enhancing our customer proposition, expanding our offer whilst staying fully committed to value and making every pound count.
Helen Dickinson, of the British Retail Consortium, said: The next few months are vital for retailers as they gear up for the all-important Christmas trading.
“While cost-of-living challenges continue to loom large, retailers are working hard ensuring customers get the best possible value.
She added: “Their capacity to do this is limited by the upcoming rise to business rates, which will see retailers paying hundreds of millions more every year and which the Chancellor should scrap in his upcoming Autumn Statement.”