The delayed arrival of warm summer weather helped UK retail sales rebound in July, according to industry data, even as shoppers continued to avoid big purchases amid an ongoing cost of living crisis.
Total UK retail sales rose 0.5% year-on-year in July, data from the British Retail Consortium showed. This marks a recovery from a disappointing performance in June, when cold weather kept consumers from spending on the high street.
In July, consumers bought summer clothes and health and beauty products in preparation for outings and vacations. However, spending on furniture and home appliances saw a decline as cash-strapped consumers prioritized essentials over big-ticket items.
The Bank of England cut interest rates last week for the first time since the Covid-19 pandemic, following a sharp fall in inflation to its 2% target in May and June. However, prices remain much higher than they were four years ago.
“Spending levels remain driven by households’ ability to absorb increases in mortgages and rents, or their need to limit their spending elsewhere as a result,” commented Linda Ellett, head of consumer, retail and leisure at KPMG in the UK. “While summer staples such as health and beauty and gardening products helped drive retail sales growth both online and in-store in July, the rise is likely to be much lower than retailers had hoped for at this important time of year.”
Additional data from Barclays showed a 0.3% year-on-year fall in overall consumer credit card spending in July, as discretionary spending remained selective amid rising living costs. Barclays, which processes nearly 40% of credit and debit card transactions in the UK, also reported increased spending on health and beauty products as warmer weather and delayed summer sales helped to support a modest rebound in retail.
However, non-essential spending fell by 1.1%, with purchases of clothing, home improvements and sports equipment down. Meanwhile, pubs and bars saw a surge in spending as football fans gathered to watch England progress in the men’s Euro 2024. Despite the defeat to Spain, payments in pubs and bars almost tripled on July 14, representing a 195.6% year-on-year increase, making it the busiest Sunday for pubs in 2024 so far, with transaction volumes up 92.9% compared to the average Sunday.
In the services sector, the S&P Global UK Services Purchasing Managers’ Index (PMI) pointed to demand rising at the fastest pace since May 2023 in July. The survey, which excludes retail, is closely watched by the Bank of England and the Treasury for early economic indicators. The PMI rose to 52.5 in July from 52.1 in June, with a reading above 50.0 indicating expansion in private sector activity.
“With the general election period over at the start of July, survey data for the past month showed that the UK services sector enjoyed a modest recovery after a rather weak end to the second quarter. The accelerated expansion in sales activity in July crucially points to improved business and consumer confidence, and while we are only a month into the second half of 2024, the latest survey results bode well for reasonable GDP growth in the third quarter,” said Joe Hayes, chief economist at S&P Global Market Intelligence.