UK Retail Sales Post Surprise Fall as Rate Hikes Bite

UK retail gross sales fell unexpectedly in October, including to the impression {that a} string of interest-rate hikes designed to beat down inflation is starting to stymie financial exercise.

The quantity of products offered in shops and on-line dropped 0.3 p.c, the Workplace for Nationwide Statistics stated Friday. That follows a downwardly revised 1.1 p.c decline in September, when unusually heat climate held again spending on clothes.

Economists had been anticipating an increase of 0.4 p.c for October. As a substitute, gross sales fell to their lowest degree since February 2021 when Covid restrictions had been in place, with retailers citing the cost-of-living disaster and unhealthy climate for the poor efficiency. It bodes in poor health for the “golden quarter,” the run-up to Christmas when shops could make a majority of their yearly income.

“Customers held onto the purse strings in October,” stated Samantha Phillips, Associate at McKinsey & Co. “Regardless of CPI inflation persevering with to drop, it’s a disappointing begin to the golden quarter which can mirror the commonly low degree of client sentiment. It’s probably additionally an indication of consumers holding out for Black Friday bargains and different festive promotions.”

The figures are the most recent indication that the UK economic system is starting to really feel the results of 14 consecutive fee hikes from the Financial institution of England in its battle towards inflation. The squeeze on households is prone to intensify subsequent yr when an estimated 1.6 million mortgages are set to be refinanced at considerably greater charges.

The pound fell as the information fueled expectations that the BOE is completed mountain climbing and will minimize charges as early as Could. The forex traded as a lot as 0.3 p.c weaker at $1.2380, set for its third day of losses towards the buck.

Whereas dwelling requirements are enhancing with inflation dropping under the tempo of wage progress, greater mortgage charges are persevering with to maintain up the stress on household budgets. There are worries that client warning might tip the economic system into recession subsequent yr.

All retail sectors noticed gross sales decline final month, aside from non-store retailing and “different shops,” which incorporates every thing from pharmacies to e-book retailers, the ONS stated.

Gross sales of family items and auto gas posted the most important declines. A drop in meals gross sales was blamed on customers prioritizing important items over discretionary spending. Gross sales excluding gas fell 0.1 p.c.

Some economists remained upbeat, saying that falling inflation and robust wage progress would underpin client spending.

“Trying forward, we expect a restoration in actual incomes will trigger retail gross sales to rebound,” stated Gabriella Dickens at Pantheon Macroeconomics. “Common weekly wages doubtless will rise extra rapidly than the CPI, which might be restrained by negligible will increase in items costs.”

The figures confirmed the affect of the surge in inflation. Complete gross sales had been 16.9 p.c greater in worth phrases than in February 2020, earlier than the pandemic struck, however volumes had been 3.1 p.c decrease.

By Lucy White

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Retail gross sales slipped 0.1 p.c final month after months of sturdy beneficial properties, pointing to slowing demand that would additional strengthen expectations that the Federal Reserve is finished mountain climbing rates of interest.