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UK retail sales fall in worst stretch for shops since 1996

Volume of goods sold in stores and online fell 0.9% from July.
Image: Bloomberg

UK retail sales fell unexpectedly for a fourth month in August, the worst stretch of declines in at least 25 years, suggesting a resurgence of coronavirus cases and supply disruptions are taking a toll.

The volume of goods sold in stores and online fell 0.9% from July, when sales plunged by 2.8%, the Office for National Statistics said Friday. Economists had expected an 0.5% gain. Sales excluding auto fuel dropped 1.2%, and the ONS revised away a small rise it had registered in June.

Doubts are growing about the outlook for consumer spending, which powers the British economy. Millions of households now face a rise in Covid-19 cases along with a sharp squeeze on living standards after a surge in inflation. Britain’s exit from the European Union and the pandemic dried up the pool of workers retailers rely on and created supply chain friction in stocking shelves.

“The numbers will stoke further fears that the pace of the UK economic recovery is slowing and that the revival in consumer demand has already peaked,” said Stuart Cole, head macro economist at Equiti Capital.

It was the first run of four consecutive declines since comparable records began in 1996. Spending in supermarkets and department stores dropped sharply along with most other categories tracked by the ONS, which said consumers steered spending toward eating out and entertainment events newly reopened after lockdowns.

The figures “should cause markets to doubt” whether the Bank of England will hike interest rates as soon as February, said Samuel Tombs, chief UK economist at Pantheon Macroeconomics. “The near-term outlook for households’ spending is overcast.”

A separate survey showed that 6.5% of retail businesses were unable to get the goods, materials and services they needed between August 9 and August 22. The figure was highest at department stores 18.2%, followed by clothing stores at 11.2%.

“Recovery has been bumpy across the sector with many retailers dealing with supply chain disruption and labor shortages,” said Emma-Lou Montgomery, associate director at the fund manager Fidelity International. “Rising prices across the board will also be starting to pile pressure on households and could continue to hamper buying habits down the line.”

The only categories that enjoyed an increase in sales were clothing and fuel as more people returned to offices and traveled for summer holidays.

Figures this week showed consumer prices rose 3.2% in the year to August, the fastest pace in more than nine years. A further acceleration is almost inevitable, with natural gas and electricity bills set to increase sharply in the autumn and supply-chain disruptions leading to shortages of everyday goods.

The government also is paring back support for low-waged workers by phasing out a temporary increase in universal credit benefits. It’s also eliminating a tax break on property purchases and planning to boost payroll taxes in April to pay for improved health care. Meanwhile, an autumn spike in unemployment looms with the ending of furlough payments for those out of work during the pandemic.

High frequency indicators point to a loss of consumer momentum in September, with visits to shops, spending on cards and eating out at restaurants all easing.

© 2021 Bloomberg

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