The UK’s spiraling cost of living crisis took another turn for the worse Friday, when ONS delivered a dire set of retail sales numbers.
Sales dropped 1.4% in March, more than triple the decline economists expected (figure below). Including fuel, sales rose a mere 0.9%, just a third of the forecasted gain.
It was the second consecutive monthly decline.
As you can see, sales have faltered since the second quarter of 2021. A look under the hood of the latest figures revealed disconcerting trends.
Sales at food stores dropped 1%, extending a five month skid (figure below). Somewhat amusingly, ONS suggested some consumers may be substituting beer for groceries. In addition to “the impact of rising food prices on the cost of living,” the government said “higher spending in pubs and restaurants linked to reduced coronavirus restrictions,” is a “possible factor” in explaining the ongoing slide in spending at food stores.
Supermarkets sales fell 0.9%, butchers and bakers saw volumes slide 0.7% and alcohol and tobacco stores suffered an 11.3% drop.
Notably, sales volumes at non-store retailers plunged by almost 8% (figure below). They dropped nearly 7% in February.
The last two months’ declines were the largest in recent memory. There’s clearly some payback here from the pandemic-driven online boom — just ask Netflix. Non-store retailing in the UK is still up more than 20% from pre-pandemic levels.
ONS cited “affordability concerns,” noting that a recent survey conducted late last month showed discretionary spending is taking a hit from soaring inflation. More than half of UK adults reported spending less on non-essentials.
The retail sales numbers came as a separate report showed consumer confidence plunging to the worst levels since the financial crisis (figure below).
The measure, from GfK’s monthly survey, sat just one point above all-time lows.
Joe Staton, director of client strategy at GfK, cited “clear evidence that Brits are thinking twice about shopping.”
Friday’s retail sales figures were more such evidence. “Personal finance and economic expectations for the next year are about as bad as they were during the financial crisis,” ING said. “All of this means it’s increasingly difficult to see consumer spending avoiding a downturn this summer, even if only modest by some historic standards,” the bank added.
Inflation printed a three-decade high of 7% for March, data out last week showed. 25% of the UK’s inflation basket is experiencing double-digit increases. That figure rises to 50% if you lower the threshold to increases of at least 5%.
Read more: UK’s ‘Cost Of Living Crisis’ Spirals
In its March economic and fiscal outlook, the Office for Budget Responsibility said real household disposable income per person will drop by 2.2% in 2022-23, the biggest decline in any single financial year since ONS records began in 1956-57.
PMI data out Friday missed estimates on the services side. “Concerns over the cost of living and the cost of doing business remain uppermost in the minds of private sector business with inflationary rises the second highest since 1998,” Duncan Brock, Group Director at CIPS, remarked. “The dark clouds from the war in Europe, Brexit concerns, a weaker global economy and a continuing shortage of potential candidates to boost capacity in recovering businesses lead to the lowest optimism” in 18 months, he went on to say.
The pound dropped to its lowest since 2020, underperforming nearly all peers. According to the Financial Times, the UK is preparing legislation that would abandon key components of the post-Brexit deal with the EU.
