British retailers reported that July's retail sales fell more than they had anticipated, influenced by heavy rain, inflation, and a series of interest rate hikes by the central bank. Official data showed that retail sales in the UK for July fell by 1.2% from June, far more than the 0.5% decline economists had forecasted. Retail sales decreased by 3.2% compared to the same period last year, also worse than the 2.1% drop predicted by economists.
Heather Bovill, the Deputy Director for Surveys and Economic Indicators at the Office for National Statistics (ONS), mentioned that it was a particularly bad month for retailers because the peak summer shopping season, coupled with the rise in living costs, meant that sales of clothing and food were very weak. The sales figures for department stores and household goods also saw a significant decline.
Affected by the heavy rain, many British consumers opted for online shopping instead of entering physical stores. Data indicated that 27.4% of retail sales in July were made through the internet, not only higher than June's 26.0% but also the highest level since February of the previous year. Moreover, sales in physical food stores fell by 2.6%, while non-food stores experienced a 1.7% decline.
In addition to unpredictable weather, consumers were also hit by high inflation. Last month, the inflation rate in the UK remained close to 7%, although this was lower than the peak of about 11% in October last year, it is still among the highest in developed economies. Some economists have indicated that the impact of the Bank of England's steady interest rate increases will inevitably harm consumer spending in the second half of 2023.
Data from market research firm GfK last month showed a drop in consumer confidence for the first time since January. Ruth Gregor, Deputy Chief UK Economist at Capital Economics, mentioned that the drag on economic activity from high interest rates would eventually lead to a 0.5% fall from the peak in real consumer spending.
Other data released last week showed that wage growth had hit the fastest since records began in 2001. While this is bad news for the Bank of England, which is striving to control inflation, it is good news for consumers. Samuel Tombs from Pantheon Macroeconomics noted an acceleration in wage growth and a slowdown in inflation paints a more optimistic picture, and they expect a rapid increase in real disposable income for households in the future.
