UK retail sales plunge 1.4% as cost-of-living crisis tightens its grip on household finances

“The fall in retail sales is yet another reflection of the misery faced by households as they desperately try to rein in their spending in the face of rapidly rising food and energy bills, higher borrowing costs and an increasingly grim economic outlook.

“With inflation at 10.1% and real incomes falling 2.9%, the cost-of-living crisis is continuing to weigh on household budgets - with many consumers slashing expenditure in a desperate bid to balance the books.

“It’s no surprise then that retail sales volumes fell 1.4% in September, continuing the downward trend seen since the summer of 2021 when all Covid-19 restrictions were lifted on the hospitality sector. However, September’s data was dampened by the bank holiday for the funeral of Queen Elizabeth II when many retailers shut their doors out of respect.

“Despite consumer budgets gaining from falling fuel prices in September, car fuel sales volumes fell 1.3% in September 2022, while the soaring cost of food was particularly hard for shoppers to swallow with food store volumes down 1.8%. Food price inflation increased to a 42-year high of 14.6% in the 12 months to September, pushing households to spend more frugally when they do their regular shop at the supermarket.

“Falling retail sales data is yet another sign that the UK is sliding into recession, as persistently high inflation and rising interest rates take their toll on consumer demand and in turn economic growth.

“With prices rising faster than wages, the prospect of a third prime minister in less than four months after the Conservative Government’s disastrous implementation of its pro-Growth fiscal plan forced prime minister Liz Truss to resign, more industrial strikes over pay in the pipeline and now tax rises and spending cuts to contend with as well, the economic landscape looks increasingly gloomy.

“More pain lies ahead for both consumers and the retail sector with the cost of borrowing set to jump again when the Bank of England increases interest rates early next month – with analysts expecting a rise of at least 100 basis points.

“With expectations the base rate will peak at 5% next year, it’s no surprise that consumer sentiment is still on the floor, with the GfK’s consumer confidence index – considered a bellwether of future household spending – remaining near a 50-year low after edging up just two points to -47 in October from –49 last month, as the country’s bleak economic prospects and political turmoil continue to take their toll.

“With financial and political events changing at an alarming pace, ordinary people struggling to absorb it all must not only contend with high inflation but also soaring mortgage rates, making the strain on their personal finances and fears over the state of the economy very real as the country heads into the colder months.

“With inflation expected to rise further from here and the economic uncertainty set to continue as the Government shops for a new leader, this will only exacerbate the squeeze on households’ real incomes, causing retail sales to struggle even more in the run-up to Christmas.”