UK retail sales unexpectedly rise in September despite economic uncertainty
UK retail sales rose unexpectedly in September, defying analyst forecasts for a cut, as consumers increased spending on technology despite looming tax rises and economic uncertainty.
According to the Office for National Statistics (ONS), retail sales grew by 0.3% in September, a sharp increase of 1% in August. Analysts had forecast a 0.4% decline this month.
Although tech equipment sold well, supermarket spending faltered, with consumers cutting back on luxury foods amid concerns about rising costs. Retail sales are still 0.2% below pre-pandemic levels, highlighting the ongoing challenges the sector faces.
In the three months to September, sales rose by 1.9%, the biggest quarterly increase since July 2021. Hannah Finselbach, chief statistician at the ONS, commented: “Technical stores reported a significant increase in sales, undercutting the performance of supermarkets. due to poor weather conditions and cautious consumer spending on luxury goods.”
Consumer Confidence and Spending Pattern
Erin Brookes, head of retail and consumer Europe at Alvarez & Marsal, says the growth is due to factors such as record rainfall and early winter temperatures, which have boosted demand for warm clothing. “Although consumers remain cautious about spending, budgets are less difficult than last year,” Brooks noted, although he warned that uncertainty ahead of the autumn budget could affect consumer confidence.
Oliver Vernon-Harcourt, head of marketing at Deloitte, pointed to a “back-to-school boom” in September, with strong sales of computers, clothing, and footwear. However, he cautioned that consumers are still involved in big-ticket purchases, while sales of smaller non-essential items are helping to boost sales.
Looking Ahead to the Fall Budget
The rise in retail costs comes ahead of Chancellor Rachel Reeves’ first budget on October 30, in which tax increases and spending cuts of up to £40 billion are expected. Reeves and the Labor leader, Sir Keir Starmer, defended the need for “tough decisions” to deal with higher-than-expected spending in a year inherited from the previous Conservative government. Their comments have raised concerns among consumers and businesses about the potential economic impact.
Consumer confidence is already showing signs of faltering. The GfK consumer confidence index fell to 20 in September, down from 13 the previous month, reflecting growing concerns about the cost of living crisis and expected measures in the upcoming budget.
Future Growth Opportunities
Despite current concerns, the economic situation could improve further in the coming months, which could support retail growth. The Bank of England is expected to cut interest rates by 25 basis points in November and December, bringing the rate down to 4.5%. This follows inflation falling to a three-year low of 1.7% in September, which helped ease pressure on the domestic budget.
With wage growth still strong at over 4%, outpacing inflation, household living standards are steadily improving. However, many consumers have increased their savings in the post-pandemic period, which may limit the need for discretionary spending. How this balance between cautious savings and improvement will work for retailers remains to be seen as the year draws to a close.
