UK retail sales rise 0.6% in October despite household finances facing increasing strain

Alice Haine, Personal Finance Analyst at Bestinvest, the DIY investment platform and coaching service, comments:

“While retail sales in October edged slightly higher following a sharp decline in September, caused in part by the extra bank holiday for the funeral of Queen Elizabeth II when many retailers closed, the quarterly figure is more reflective of the strain on consumer wallets right now. Sales volumes fell 2.4% in the three months to October 2022 when compared with the previous three-month period as rapidly rising food and energy bills, higher borrowing costs and an increasingly grim economic outlook took their toll on household budgets.

“With inflation at 11.1%, real incomes falling 2.7%, interest rates at 3% and expected to rise further and a recession already underway, Britons are being forced to rein in expenditure at a rapid pace. Yesterday’s Autumn Statement only added more pain to the mountain of personal financial challenges, with Chancellor Jeremy Hunt increasing the tax burden to its highest level since the Second World War.

“The cost-of-living crisis is very much alive with the slight uplift in October’s retail sales offering false hope in the run-up to Christmas. The quarterly decline continues the downward trend seen since the summer of 2021 when all Covid restrictions were lifted – a time when the sector was hoping for a surge in spending. Instead, the cost-of-living crisis has become the talking point, with Britons tightening their belts in the face of much higher living costs.

“Among those is the soaring cost of groceries which caused food sales volumes to fall 1% in October. That’s no huge surprise when you consider food price inflation hit 16.4% in the 12 months to October – the highest level since September 1977 - pushing household budgets to the brink.

“With the cost-of-living crisis set to erase eight years of household income growth, causing output to contract 2% and more than 500,000 workers to lose their jobs, according to the Office for Budget Responsibility, the outlook for retailers is far from rosy.

“The retail sector, still reeling from the disappearance of several major high street favourites during the pandemic, could see more casualties in the months ahead. Sadly, a curtailed Christmas as consumers adopt a more frugal approach to the festivities could potentially be the final nail in the coffin for some brands.

“The GfK’s consumer confidence index – considered a bellwether of future household spending – offered a tiny flicker of hope, rising slightly to minus 44 in November from minus 47 in October – perhaps reflecting a sense of relief among the British public that the country’s financial outlook has stabilised following the exit of Liz Truss’s government. However, it remained near a 50-year low of minus 49 in September, with the forecast for personal finances over the next 12 months rising five points to minus 29, but still 31 points lower than a year ago.”