UK retail sales plunged more than forecast in March as the cost-of-living crisis squeezed incomes and consumers braced for higher taxes and energy bills.
The volume of goods sold in stores and online dropped 1.4 per cent after falling 0.5 per cent in February, the Office for National Statistics (ONS) said Friday. Economists had expected a decline of 0.3 per cent. Sales excluding motor fuel dropped 1.1 per cent.
A separate survey by GfK showed that UK consumer confidence sank for a fifth month in April, with British people more pessimistic about the outlook for their personal finances and the general economy than during the depths of the financial crisis. Bloomberg Economics said the figures were synonymous with recession.
Wages are increasingly falling behind the rate of inflation, which hit a 30-year high of 7 per cent in March. Households faced a further blow this month when energy bills and payroll taxes rose sharply. Together, the shock is forecast to deliver the biggest blow to living standards in at least six decades.
The fall in retail sales was led by sales of food, clothing and footwear, and auto fuel. Record-high petrol and diesel prices, driven up by the war in Ukraine, led people to make fewer non-essential journeys.
Online sales also declined sharply to 26 per cent, the lowest proportion of overall sales volumes since February 2020, as people cut discretionary purchases.
The impact was partially offset by increased sales of household goods, thanks to sales of DIY and second-hand items, itself a possible sign of people economising.
“We expect consumer spending to come under further pressure in the coming months given the unrelenting squeeze on incomes,” said economist Niraj Shah. “The cost-of-living crisis is likely to worsen in April, with a hike in energy bills as well as tax increases. We now expect inflation to hit 9 per cent at that point.”
Consumers are also facing the prospect of more expensive mortgage costs as the Bank of England raises interest rates in an effort to tame inflation.
Policymaker Catherine Mann said on Thursday that she is focused on how well demand holds up in the face of the inflation squeeze as she weighs whether, and how much, to vote to raise rates by in May. She noted that data suggested “consumers were forward-looking, which would translate into a period of softer demand growth, perhaps even retrenchment”.
A separate ONS survey found that 87 per cent of adults reported their cost of living had increased over the past month, up from 83 per cent. Some 88 per cent said the reason was an increase in the price of food.
The outlook for retail sales and the broader economy will depend on the willingness of households to use savings built up during the pandemic to cushion the blow.
That’s not an option for poorer families, who will be forced to borrow to maintain their living standards or buy fewer goods and services. Economists in a regular Bloomberg survey put the chance of a recession in the coming year at 30 per cent, the highest it has been since early 2021.
“Retailers are themselves squeezed between rising costs of operations, exacerbated by the situation in Ukraine, and weaker demand from customers,” said Helen Dickinson, chief executive of the British Retail Consortium. “Higher global commodity prices, rising energy and transport costs, and a tight labour market are all taking their toll. As a result, it is likely that retail prices will continue to rise over the course of 2022.” – Bloomberg