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UK retail sales up but inflation pressure continues

·Finance Reporter, Yahoo Finance UK
·3 min read
UK retail sales A man cools off in a fountain during the hot weather in London, Britain, July 18, 2022. REUTERS/John Sibley
Hot summer weather buoys UK retail sales. Photo: John Sibley/Reuters

UK retail sales climbed last month on the back of demand for summer clothing and picnic food during the hot weather but the record high inflation is masking a much larger drop in volumes, according to the British Retail Consortium (BRC).

Retail sales increased by 2.3% in July, bringing to an end three consecutive months of decline. However, the figures are not adjusted for inflation, which the BRC said was running among its at the highest since 2008 as the cost of living crisis continues to hit UK households.

“Sales improved in July as the heatwave boosted sales of hot weather essentials. Summer clothing, picnic treats, and electric fans all benefited from the record temperatures as consumers made the most of the sunshine.

"However, with inflation at over 9% many retailers are still contending with falling sales volumes during what remains an incredibly difficult trading period,” Helen Dickinson, BRC’s chief executive, said.

Read more: Energy bills: Thousands in the UK vow to not pay as charities warn of consequences

“Consumer confidence remains weak, and the rise in interest rates coupled with talk of recession will do little to improve the situation.

"The Bank of England now expects inflation to reach over 13% in October when energy bills rise again, further tightening the screws on struggling households.

"This means that both consumers and retailers are in for a rocky road throughout the rest of 2022,”she added.

Overall sales of non-food items, such as clothing and homeware, declined by 2% in the latest quarter.

Sales of non-food products from stores were up 2% for the three-month period as shoppers continued to switch back to UK high streets, but online sales were down 3.9%.

“The sun came out for retailers in July, as like for like sales grew 1.6% on last year. Against a backdrop of the cost of living crisis and on-going reports of low consumer confidence actual sales are still holding up. Online retailers also saw the benefit of warmer weather with sales growth falling more slowly, by just 3.9% on July 2021,” Paul Martin, UK head of Retail at KPMG, said.

Retailers have said that in recent months they have seen a decline in volumes sold because of increased food prices and the cost of living crisis

“July’s food and drink value sales were again flattered by inflation, masking some ongoing dips in sales volumes. Shoppers are genuinely tightening their belts by buying fewer items in addition to switching stores and buying more private label products,” Susan Barratt, CEO of IGD, said.

Read more: More than one in five people have approved suspicious bank payments

Separate figures from Barclaycard also show that overall consumer spending lifted in July.

Data from the credit card business showed that spending grew 7.7% in July against the same period last year.

The figures showed that Britons spent more on clothing, beauty and UK holidays as the school holiday period began.

Credit card spending on essential items increased by 7% year on year, driven by higher prices for food and fuel. Spending on utilities soared by 43.9% compared with the same month a year earlier.

The official consumer prices index measure of inflation facing consumers is at a 40-year high of 9.1% – led mostly by energy and fuel costs.

Watch: How does inflation affect interest rates?