Tough summer for retailers as UK consumer confidence hits low | consumer spending
With consumer confidence at rock bottom, it’s hardly surprising that retailers across Britain had a tough May. The real surprise was that the 0.5% drop in spending volume was no worse.
The monthly survey of how UK consumers feel from data firm GfK dates back to 1974 and therefore includes some earlier periods when times were tough: the manufacturing annihilation of the early 1980s, the property crash of the early 1990s and the global financial crisis. 2008 crisis among them. Throughout this time, consumers have never been so glum as they are today.
The reason for this pessimism is obvious: prices are rising much faster than wages, which erodes purchasing power. Food sales have been hit particularly hard as shoppers impose spending limits on supermarket checkouts.
Retail sales have trended lower over the past year, but as EY Item Club chief economic adviser Martin Beck pointed out, the weakness was initially the result of shifting consumer spending from goods to services as Covid lockdown restrictions were lifted.
Retail sales represent only about a third of total consumer spending. Dining out, hotel stays, vacations and car sales are just some of the items not included in the Office for National Statistics monthly publication. So it’s possible – roughly – that a decline in retail sales could be offset by increased spending elsewhere. The Leeds cricket test between England and New Zealand is sold out for the first four days, and there has been no shortage of takers for Glastonbury Festival tickets at £280 a pop.
But there is more than that.
Five declines in retail sales over the past seven months cannot be attributed to a turnover effect. Consumers aren’t just being hurt by rising food prices: Energy bills rose in April, as did taxes.
It is possible that some people – especially those in wealthier households – will dip into savings they have amassed during lockdowns when spending opportunities were limited. The £15billion support package for energy bills announced by Rishi Sunak last month will also help soften the blow to street and online spending.
Even so, inflation has not yet peaked. Six months ago, the Bank of England expected it to top out at 5%. Now Threadneedle Street thinks it will hit 11%. The £100 petrol tank is now a reality and the energy price cap is set to be raised to around £2,800 in October. Consumers will count the pennies. A long and difficult summer for retailers seems inevitable.