Retail sales tumble as cost-of-living crisis forces people to cut back

Deborah Meaden offers top tips for local retailers this Christmas

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Retail sales volumes experienced a surprising fall in November, as households tighten their belts for Christmas amidst the cost-of-living crisis. Although inflation may soon be brought to bear, the retail figures confirm the knock to consumer spending behind the recession that awaits the country in the New Year.

According to figures released by the Office for National Statistics (ONS) on Friday, the volume of retail sales in Great Britain dropped by 0.4 percent between October and November.

This came in defiance of economists’ predictions of 0.3 percent growth driven by Black Friday bargain-hunting, the World Cup and the run-up to Christmas.

Black Friday shopping deals failed “to provide their usual lift in this sector,” according to ONS director of economic statistics Darren Morgan.

Oliver Vernon-Harcourt, head of retail at Deloitte, said: “The incentive of discounts was not enough to draw consumers to spend on non-essential items in what will be the most recent blow for retailers who had been hoping on big Black Friday results.”

The decline also comes off the back of higher-than-expected 0.9 percent growth in October, when sales rebounded from the added Bank Holiday for the Queen’s state funeral in September.

These figures reflect the gloomy outlook of households and businesses whose budgets have been squeezed throughout the year, with energy prices continuing to drive the cost-of-living crisis through the winter.

The UK inflation rate stood at 10.7 percent in November – a slight fall back from the 41-year record high of 11.1 percent reported in October, yet still one of the fastest rates of price rises in decades.

“People are paying a whole lot more to buy a whole lot less and that’s hurting consumers and retailers alike,” said Danni Hewson, AJ Bell financial analyst, commenting on the figures.

Reflective of the effect of inflation, retail sales values rose by 4.4 percent in the three months to November, despite volumes falling by 6.2 percent.

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The onset of winter cold and the ongoing transport disruption is also thought to have played a role, with retail analysts Springboard reporting a 31.7 percent drop in high street footfall in London during Tuesday’s train strike.

Sales volumes were also dragged down by a 2.8 percent dip in online shopping, in line with the long-term downward trend since the end of lockdowns but also potentially due to fears of shipping disruption from the Royal Mail’s industrial dispute.

Petrol and diesel sales volumes fell by 1.7 percent in November – 8.7 percent lower than February 2020 levels. Non-food store sales fell by 0.6 percent during the month.

Only food sales volumes rose significantly from the previous month – by 0.9 percent – with the ONS suggesting that this may reflect that consumers were “stocking up early to try and spread the cost of Christmas festivities.”

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Mr Vernon-Harcourt suggests Boxing Day may provide a welcome lift to the ailing retail sector this winter, as with consumers likely to “double down on discounted goods amidst what is likely to be an increasingly competitive promotional environment.”

However, this is unlikely to stave off concerns that the UK will by that time be in the midst of a recession. The country’s economic output fell by 0.2 percent during the third quarter, and is expected to do so again between October and December.

Household consumption is the largest element of expenditure across the economy, accounting for 58% of the total in 2021, according to the latest ONS figures.

Back in May, a Bank of England (BoE) report said: “Household disposable income is projected to fall in 2022 by the second largest amount since records began in 1964.”

At its latest meeting on Thursday, the BoE’s Monetary Policy Committee voted to increase the interest rate by less than it had done so in November, fuelling speculation that inflation may finally have peaked.

Governor Andrew Bailey praised what may be the “first glimmer” of hope that inflation would soon be under control, adding that the economy was performing better than anticipated.

However, with the base rate now at 3.5 percent – its highest level since 2008 following the fastest rate of hikes in a single-year since 1989 – mortgaged households in particular are likely having to reign in their Christmas spending.

According to research group GfK, consumer confidence has been increasing steadily since October, yet remains at its lowest sustained level in half a century.

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