Retail sales growth in the UK experienced a noticeable slowdown in September 2024, reflecting the mounting pressures on household finances ahead of the upcoming Budget announcement. Data from the British Retail Consortium (BRC) and KPMG show that total retail sales increased by 2.3% year-on-year—above September 2024’s 2.0% growth and slightly higher than the 12-month average of 2.1%, yet marking the weakest growth in several months. This deceleration signals the caution shoppers are exercising amidst rising inflation and economic uncertainty as the festive season approaches.

Food retail demonstrated a 4.3% year-on-year rise in sales, primarily driven by inflation rather than an increase in volume purchased. This inflationary effect on food costs has been a persistent feature for consumers, who are facing higher prices across essentials. Meanwhile, non-food sales growth was significantly subdued, climbing only 0.7% compared to 1.7% last September and falling below the 12-month average of 0.9%. The online non-food sector also saw a marked slowdown, with sales up just 1% against 3.4% last year, reflecting more targeted spending patterns. Milder weather conditions contributed to consumers delaying their autumn and winter wardrobe refreshes, although electrical sales enjoyed a boost, buoyed by the release of Apple’s latest iPhone and watch models.

Industry experts have highlighted the dual impact of economic pressures and the imminent Budget on retailer and consumer behaviour. Helen Dickinson, chief executive of the British Retail Consortium, pointed out that rising inflation and a potentially taxing Budget are weighing heavily on household spending plans, especially as consumers begin to brace for higher bills. She urged the government to consider exempting large anchor stores from new business rates to alleviate inflationary pressures that threaten both retail jobs and investment. Similarly, Linda Ellett, KPMG’s UK head of consumer retail and leisure markets, noted that while household goods and new mobile phone releases drove some growth, overall spending remains cautious. Non-food sales, growing modestly at about 1.2% on average, highlight consumers’ selective spending habits as retailers prepare for the crucial ‘golden quarter’ of the year.

Barclays’ data further corroborates this cautious sentiment. They reported a 0.7% decline in consumer card spending year-on-year for September, a significant drop from 0.5% growth recorded in August. Essential goods spending continued its downward trajectory with a 2.6% fall, marking a fifth consecutive monthly decline, while non-essential spending rose just 0.2%, the slowest in 15 months. Despite this, consumer confidence in managing personal finances reached its highest point in over four years, with 78% expressing confidence in their budgeting ability and 74% optimistic about their household finances. This paradox suggests that while consumers are tightening their belts, they remain determined to navigate the cost-of-living squeeze effectively. Barclays' Karen Johnson noted that shoppers are prioritising affordable "pick-me-up" purchases in categories like clothing, furniture, and beauty, which have shown resilience.

Other analyses suggest a mixed picture for retail spending more broadly. KPMG data from September 2024 indicated a modest retail sales increase of 0.4% month-on-month, driven in part by stronger wage growth and a healthy employment outlook which buoy household optimism. However, certain sectors such as motor vehicles showed uneven performance, and the uncertainty around business rates reform complicates retailer confidence for investment and staffing decisions heading into the holiday season. The possibility of a new business rates surtax remains a looming threat, potentially exacerbating pressures on retailers already contending with tight margins and cautious consumer behaviour.

In summary, the UK retail sector stands at a crossroads as households brace for the Budget while managing inflationary headwinds. The interplay of cautious consumer spending, resilient pockets of demand—especially in affordable categories and new technology releases—and looming fiscal policies shapes a complex environment for retailers during the critical lead-up to Christmas. The coming weeks and Budget announcements will be key in determining whether this cautious spending becomes a restrained holiday season or if confidence and spending can be revitalised.

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Source: Noah Wire Services