The UK’s rising inflation rate is forcing consumers to pay more for the same amount of goods, underscoring the bleak outlook for the economy.
Retail volume unexpectedly rose 0.3 percent last month, but the cost of those sales rose faster by 1.3 percent, the Bureau for National Statistics said on Friday.
The volume gains came from a 4.8 percent increase in web-based stores, which offered discounts and promotions to attract customers.
The numbers came hours after a separate report showed consumer confidence had fallen to its lowest level since 1974, when oil supply shocks triggered a wage-price spiral and forced the industry to work only three days a week.
It capped a week with official data suggesting the UK economy is beginning to buckle under the weight of falling real wages and downward pressure on the cost of living.
“The strain on the personal finances of many in the UK is alarming,” said Joe Staton, Client Strategy Director at GfK.
“Just making ends meet has become a nightmare. The crisis of confidence will only worsen with the darker autumn days and colder winter months.”
The pound fell after the reports, bringing the cumulative decline against the dollar to 12 percent so far this year.
10-year UK government bond yields rose 9.2 basis points to 2.399%, with investors expecting the Bank of England to continue raising interest rates sharply to fight inflation.
Internet retailers accounted for 26.3 percent of all retail sales in July, up slightly from the previous month.
Fuel sales fell 0.1 percent for the month, reflecting a rise in prices.
Supermarkets saw a small gain, but non-grocery stores saw a larger decline.
Online gains offset a decline in sales of clothing, homeware and second-hand items including antiques.
“Summer sunshine brought a modest increase in sales,” said Helen Dickinson, chief executive officer of the British Retail Consortium.
“Summer clothing, air conditioning and outdoor groceries have all benefited from record temperatures, but most retailers will still face falling volumes as inflation rises.”
Friday’s report follows a series of indicators pointing to a rising risk of recession in the UK.
Inflation-adjusted real wages fell 3 percent in the second quarter, the sharpest on record. Consumer price growth broke into double digits last month for the first time since 1982.
“As the summer rolls around and the credit card bills arrive for the holidays, so do other key costs,” said Paul Martin, head of retail at KPMG.
“As a result, many retailers are expecting a drop in demand in autumn at a time when their own margins will continue to come under pressure.”
Of greater concern are the prospects for the labor market.
New job openings fell for the first time since August 2020. It’s a sign that labor demand may be cooling, which would wipe out the strongest pillar of the economy since the pandemic.
The Bank of England is focused on bringing inflation back to its 2% target and has signaled further rate hikes are likely – even if they will dampen growth.
Investors expect the reference interest rate to rise by half a point to 2.25 percent and interest rates above 3.5 percent by the middle of next year.
Another report this morning showed that UK government borrowing for the first four months of the fiscal year was higher than forecast as rising inflation pushed up the cost of debt.
A budget deficit of more than forecast £4.9bn (€5.8bn) in July brought the total for 2022-23 so far to £55bn – £3bn more than officials had forecast in March.
Debt servicing costs rose 81 percent year-on-year.
“I know that rising inflation poses challenges for families and businesses, and it’s also putting pressure on public finances by pushing up the amount we spend on debt interest,” Finance Minister Nadhim Zahawi said.
https://www.independent.ie/business/world/uk-outlook-dims-with-consumers-paying-more-to-buy-less-in-shops-41922774.html The UK outlook is clouding over as consumers pay more to shop less in stores