Retail sales in Great Britain fall as struggling households cut back

Retail sales in Great Britain fell more steeply than expected last month, the latest negative economic update before the chancellor, John Healey, announces his budget next week.

The Office for National Statistics (ONS) said the volume of goods sold fell 0.4% month on month in September, much steeper than economists’ consensus expectations of a 0.1% fall.

The drop in sales, fuelled in part by poor online sales of autumn and winter wear because of unseasonably warm weather last month, comes as figures show that consumer confidence in the UK has fallen at the fastest rate since the Covid pandemic.

While retail sales dropped across almost all sectors of the industry, the volume of motor fuel sold soared 2.2% month on month in September despite prices at the pump soaring to record highs, returning to levels last seen before the start of the conflict in the Middle East.

In value terms the 6.1% increase in fuel sales is the biggest month-on-month increase since 10.9% was recorded in March, the month immediately after the start of the US-Iran conflict.

Stripping out the boost from fuel, retail sales slumped 0.7% month on month in September, much worse than the 0.1% fall forecast by the City.

“October’s sharp fall in consumer confidence and the dip in retail sales volumes in September show that times are getting tougher for households just as the all-important festive period for retailers is just around the corner,” said Paul Dales, the chief UK economist at Capital Economics. “This supports our view that both real consumer spending and real GDP will grind to a halt in [this year’s fourth quarter and the first quarter next year]. And this fall in consumer confidence is also the kind of thing that makes the prime minister less likely to call an early election soon.”

Non-store retailing, predominantly online sales, fell 2.2% month on month, the biggest percentage fall across the retail sector.

Textile, clothing and footwear stores recorded a 0.9% fall, household goods retailers were hit by a 0.5% sales slump, while supermarkets dipped 0.4%, partly because of poor sales of clothing ranges due to the weather.

The only sector to record an increase in sales last month – apart from automotive fuel – was department stores, where the volume of goods bought rose 0.2% compared with September.

The fall in monthly sales follows a bumper August, with the ONS revising figures up from a 0.5% monthly rise to 0.7%, helping quarterly sales increase to 0.7% year on year.

“Retail sales grew in the latest quarter with growth led by motor fuel, which, despite recent price increases at the pump, have now returned to monthly sales levels last seen before the start of the conflict in the Middle East,” said Hannah Finselbach, a senior statistician at the ONS. “Food and drink sales also contributed to growth in the quarter, partly helped by the warm weather and the World Cup, although they fell back slightly in September.”