UK consumers are starting to crumple in the face of soaring prices, according a series of reports that paint a grim picture of the nation’s cost of living crisis.
The Office for National Statistics said Friday the volume of goods sold in stores and online fell 0.5% in May, as soaring food prices forced consumers to cut back on spending in supermarkets.
That followed earlier figures showing higher prices are also weighing heavily on consumer confidence, pushing it to to a record low this month. The outlook for stores also looks bleak, with the Confederation of British Industry saying Thursday that retailers were also expecting a poor July.
Taken together, the reports show the deep damage that the fastest inflation rate since the 1980s is having on the economy. With wages failing to keep pace with rising prices, consumer finances are being squeezed. The outlook is more gloomy than during the depths of the coronavirus pandemic.
“We’re entering the real cost of living crisis,” said Emma-Lou Montgomery, associate director at Personal Investing, Fidelity International. “With prices for even the most basic foods and goods rising substantially many consumers are already adopting more defensive spending behaviors, such as self-imposed checkout limits.”
The poor figures are bad news for Prime Minister Boris Johnson’s ruling Conservatives, which suffered two bruising defeats in key special elections on Thursday.
GfK said Friday its measure of consumer sentiment dropped 1 point to minus 41 in June, the lowest reading in the 48 years of the survey. The risk of recession weighed on consumers’ view of the future outlook both for their own finances and the broader economy.
The survey is the first since the government announced a multi-billion pound package of support for households to help them cope with soaring energy bills. The findings suggest that unprecedented aid is not enough to bolster sentiment.
“Britain faces a stark new economic reality,” said Joe Staton, client strategy director at GfK. “History shows that consumers will not hesitate to retrench and tighten their purse strings when the going gets tough.”
Meanwhile the ONS said the drop in sales from April — the third in the last four months — was driven by a 1.6% fall in food sales, particularly at large supermarkets. Data earlier this week showed overall inflation hit a four-decade high of 9.1% in May with food prices rising 8.5%.
“Feedback from supermarkets suggested customers were spending less on their food shop, because of the rising cost of living,” said Heather Bovill, the ONS’s deputy director for surveys and economic indicators.
Sales at supermarkets fell 1.5% last month, the ONS said, while sales of tobacco, alcohol and other drinks dropped 4%. Total sales were 1.3% lower in the three months through May than during the December to February period, suggesting the retail sector will act as a drag on the economy in the second quarter.
In May, department stores and household goods shops also reported a drop in sales as people spent less on items such as furniture. There was also a small decline in online spending. The impact was only partially offset by increases in spending on motor fuel and clothing and footwear. Overall sales excluding fuel fell 0.7%.
Sales in April rose just 0.4%, rather than the 1.4% previously estimated. Sales volumes last month were just 2.6% above their levels in February 2020, before the pandemic struck.
The prospects of a summer of industrial action and soaring interest rates are also weighing heavily on the mood of the nation, with the Bank of England indicating it is prepared to sacrifice economic growth to lean against higher prices.
With the economy already on track to shrink in the second quarter, the risk is that ebbing confidence weighs further on spending and tips the economy into recession. More pain also lies ahead, with the BOE predicting inflation will climb above 11%, more than five times its target, as another big energy-bill hike kicks in come October.
“As essential costs continue to rise, as does the risk that further discretionary goods demand reduces in line with the consistently low levels of consumer confidence that we are seeing,” said Linda Ellett, UK head of consumer markets, retail and leisure at KPMG.
© 2022 Bloomberg L.P.