Jacqui Baker, partner and head of retail at leading audit, tax and consulting firm RSM UK, comments on the June ONS retail sales data, which shows another decrease in retail sales volumes of 0.1%:
‘The latest retail sales data is clear evidence that consumers are feeling the full brunt of the cost of living crisis. While the 3.1% increase in food sales could be due to the extra bank holiday, it may also be a sign that consumers are eating in more to save money. The drop in sales volumes in every other category, except other stores, suggests the ‘Jubilee jump’ that retailers were hoping for failed to deliver. The cost of living squeeze was further compounded by the rail strikes which took place later on in the month, contributing towards the fall in sales.
‘Household goods are still being pushed to the bottom of the priority list, down 3.7% in June, as consumers cut back on spending. But this month, the real sea change has been in clothing and accessories, down 4.7%. Non-store retailing (predominately online retailers) sales volumes also fell 3.7%, bringing to the fore the headlines we’ve seen in the last month, with embattled online fashion brands being squeezed by declining margins and lower consumer spend.
‘There’s a noticeable shift among consumers’ shopping habits, with good value products becoming an increasingly important factor. Shoppers are concerned about the quality and sustainability of a product, but at the right price. With retailers grappling with inflation, supply chain issues and rising costs, the pressure is on to find the right balance to meet consumers’ changing needs.
‘As the battle to become the next Prime Minister nears to a close, new leadership could be what the sector needs to bring business rates reform back on the agenda. This would be a welcome step towards helping high streets thrive again.’
Thomas Pugh, economist at RSM UK, added: ‘The 0.1% m/m drop in retail sales volumes in June is another sign that soaring inflation is starting to eat into consumers’ spending power. Indeed, retail prices rose by 1.5% in June meaning they are now 11.1% higher than the same time last year. So, while retail sales values rose by 4.4% y/y in June, the volume of goods purchased fell by 5.8% y/y.
‘Combined with the extra bank holiday, which will have depressed output in most of the economy, and inflation hitting 9.4%, this suggests that GDP shrank in June. We expect Q2 GDP to have fallen by 0.1%.
‘However, there are three reasons to expect retail sales to slow rather than collapse. First, households have a pot of savings worth almost 15% of GDP to draw down to help combat inflation. Second, the extremely tight labour market makes it unlikely that the unemployment rate will jump sharply. Third, additional government support will start to support lower income households in the second half of the year.’