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British retail sales have fallen unexpectedly to their lowest level since February 2021, when Covid-19 curbs were in place, fuelling concerns that high prices and interest rates are hitting households’ finances more sharply than anticipated.
The quantity of goods bought in Great Britain declined 0.3 per cent in October compared with the previous month, the Office for National Statistics said on Friday.
Economists polled by Reuters had forecast a 0.3 per cent rise. The fall in October follows a bigger than previously calculated drop of 1.1 per cent in September.
Retail sales figures, the first official economic data released for October, give an early sign of the state of the consumer sector in the final quarter.
Friday’s data showed that the volume of retail sales fell to its lowest level since February 2021, suggesting household spending was weak ahead of the Christmas shopping season, traditionally the busiest for retailers.
That will fuel concerns that the economy will contract in the last three months of 2023, after separate ONS data last week found that a fall in household spending contributed to the economy flatlining in the three months to September.
Thomas Pugh, economist at audit firm RSM UK, said the figures added “to the risks that the economy will slide into a recession at the end of the year”.
Erin Brookes, European retail and consumer lead at management consulting group Alvarez & Marsal, said a second consecutive monthly decline in retail sales did not “bode well for the high street as we enter the festive season”.
As well as falling to the lowest point in more than two years, the volume of retail sales was 2.7 per cent below its level in October 2022. The drop was much larger than the 1.5 per cent decline forecast by analysts, indicating that people are buying less as high prices and borrowing costs squeeze their finances.
Compared with February 2020, consumers bought 3.1 per cent fewer goods but spent 16.9 per cent more last month, reflecting the impact of high inflation.
UK inflation dropped to a two-year low of 4.6 per cent in October thanks to lower energy costs, according to data published on Wednesday, but consumer prices remain one-fifth higher than in early 2021.
Interest rates are at a 15-year high of 5.25 per cent as the Bank of England tries to bring back inflation to its 2 per cent target.
Heather Bovill, ONS deputy director for surveys and economic indicators, said that “after rebounding in September, fuel sales dipped with increasing prices discouraging customers, while food sales also dropped as consumers prioritised essential goods”.
“It was another poor month for household goods and clothes stores with these retailers reporting that cost of living pressures, reduced footfall and poor weather hit them hard,” she added.
Clothing stores registered a 0.9 per cent fall in sales volumes, with the mix of wet and warm weather hitting demand for winter wear and footfall.
Sales volumes in household goods stores dropped 1.1 per cent, driven by a sharp decline in furniture purchases. Department stores also reported contracting sales, with some retailers pointing to the drop in consumer confidence.
Samantha Phillips, partner at consultancy McKinsey & Co, said that given the slow start to the quarter, “retailers will be fighting to win discretionary spend of both their loyal and new customers on Black Friday and as we head into December”.