Commenting on the March ONS retail sales data, which showed a sharp decrease in retail sales volumes of 1.4%, Jacqui Baker, partner and head of retail at RSM UK, said: ‘Fear around the cost of living crisis has seen consumer confidence plummet to peak pandemic levels as uncertainty grips consumers spend, so it’s no surprise to see retail sales fall by 1.4% in March.
‘The cost of living crisis and rebalancing of consumer spending habits is now starting to bite for online sales as we’ve seen two months of sharp decreases at 6.9% and 7.9% for February and March. In addition, soaring petrol prices which are up 29% year on year, drove a sharp 3.8% fall in fuel sales. The one positive was household goods which were up by 2.6%, driven by a strong housing market.
‘Double digit price inflation on certain categories including clothing and footwear and furniture at 10% is squeezing the consumer pound making it harder to justify spend. Add in soaring energy prices, increased interest rates and higher NIC tax contributions and consumers are having to re-evaluate and prioritise spending.
‘However, some people are taking the opportunity to dine out, or head abroad for a well-earned break, now that restrictions have eased, but this only compounds the competition for disposable income. Unfortunately, this headwind will persist with the energy price cap increasing in April and pressure on retail spending looks set to continue throughout 2022.’
Thomas Pugh, economist at RSM UK, added: ‘The 1.4% m/m drop in retail sales volumes is the first sign in the official data of the toll that the cost-of-living crisis is having on consumer spending and the economy. What’s more, there is worse to come over the next few months as the cost-of-living crisis is likely to worsen in April, with a hike in energy bills and taxes.
‘The outlook for retail sales, which account for about a third of consumer spending, and the broader economy will depend on the willingness of households to use their savings to cushion the blow. There is some early evidence that consumers are starting to save less and borrow more to insulate themselves from soaring inflation. That is a key reason why we aren’t expecting a recession in the second half of this year, although with GDP growth set to average just 0.1% per quarter, it wouldn’t take much to push the UK into a recession.’