UK retail sales rose unexpectedly in September, defying analysts’ expectations of a contraction, as consumers increased their spending on technology despite looming tax rises and economic uncertainties.
According to the Office for National Statistics (ONS), retail transactions rose 0.3% in September, building on a strong 1% increase in August. Analysts had expected a decline of 0.4% during the month.
While technology equipment saw strong sales, spending faltered in supermarkets, with consumers cutting back on luxury food purchases amid concerns about rising costs. Retail sales remain 0.2% below pre-pandemic levels, highlighting the ongoing challenges facing the sector.
Over the three months to September, sales increased by 1.9%, the joint largest quarterly increase since July 2021. Hannah Wensselbach, chief statistician at the Office for National Statistics, noted: “Technology stores reported a notable rise in sales, offsetting the weak performance in tech stores.” supermarket.” Due to bad weather and cautious consumer spending on luxury goods.
Consumer confidence and spending patterns
Erin Brooks, head of European retail and consumer at Alvarez & Marsal, attributed the growth to factors such as record rainfall and early winter chills, which boosted demand for warm clothing. “While consumers remain cost-conscious, budgets are somewhat less stressful than they were a year ago,” Brooks noted, although she cautioned that uncertainty ahead of the fall budget could impact consumer confidence.
Oliver Vernon Harcourt, head of retail at Deloitte, noted a “back-to-school boost” in September, with strong sales of computers, clothing and shoes. However, he warned that consumers were still holding back on expensive purchases, while sales of small, non-essential items helped support sales values.
Looking forward to the fall budget
The rise in retail spending comes in the run-up to Chancellor Rachel Reeves’ first Budget on October 30, when tax rises and spending cuts of £40bn are expected. Reeves and Labor leader Sir Keir Starmer defended the need for “difficult decisions” to confront higher-than-expected annual spending inherited from the previous Conservative government. Their statements raised concerns among consumers and businesses about the potential economic impact.
Consumer confidence is already showing signs of fragility. The GfK consumer confidence index fell to minus 20 in September, down from minus 13 the previous month, reflecting growing concerns about the cost of living crisis and measures expected in the upcoming budget.
Potential for future growth
Despite current concerns, the economic outlook could improve further in the coming months, which could support retail growth. The Bank of England is expected to cut interest rates by 25 basis points in both November and December, bringing the base rate to 4.5%. This comes after inflation fell to a three-year low of 1.7% in September, which helped ease pressure on household budgets.
With wage growth remaining strong at more than 4%, outpacing the inflation rate, household living standards are gradually improving. However, many consumers have increased their savings post-pandemic, which may limit demand for discretionary spending. It remains to be seen how this balance between cautious saving and improving wages will impact retailers as the year comes to a close.