UK retail sales drop as shoppers hit by inflationary fears

British retail sales unexpectedly fell in February, raising concerns that surging inflation was stunting the UK’s economic recovery even before Russia’s invasion of Ukraine began.

While the amount of money spent by shoppers on the high street was 0.7 per cent more last month than in January, the quantity of goods bought fell 0.3 per cent, highlighting the effect of inflation squeezing household finances.

Economists said the figures underscored fears over economic growth slowing ahead of petrol prices climbing further as a result of war in Ukraine and the increase in gas and electricity bills next week when Britain’s energy price cap is lifted.

Philip Rush, founder of the consultancy Heteronomics, said the rise in spending in February was more than fully eaten up by higher prices. “In this sort of environment, consumers must pay more for essential items, which crowds out what else they can afford to buy,” he said.

Sales of large-ticket items, such as furniture and other consumer durables, are most vulnerable, with people’s appetites for making significant purchases falling sharply, according to the consumer research firm GfK.

In March, the UK consumer confidence index plummeted 5 points to minus 31, its lowest reading in 17 months, and a stark indication that Britons’ spending appetites are waning.

Joe Staton, a director at GfK, said, “a wall of worry is confronting consumers” with the outlook for personal finance and consumer confidence likely to get worse. “It’s certain there’s more bad news to come,” he said.

The early signs of spending falling back have come even before the cost-of-living crisis has been fully felt.

Official forecasts for the coming financial year, which starts in April, in the Spring Statement on Wednesday pointed to the sharpest drop in real household disposable incomes since comparable records began in 1956.

Samuel Tombs, economist at Pantheon Macroeconomics, said that February’s retail sales figures showed that “the squeeze on real household disposable income already is draining the momentum from the economic recovery”. He noted that sales volumes had fallen to 1 per cent below their average level in the second half of 2021.

“Consumers face a rocky road ahead, with rises in the energy price cap and NI [national insurance] contributions both coming next week, ”said Helen Dickinson, chief executive of the British Retail Consortium.

With the cash amount of household spending rising, bringing tax revenues flooding into the Treasury, Rishi Sunak, chancellor of the exchequer, decided against using the windfall to protect vulnerable households on benefits and pensioners, leaving these to rise by 3.1 per cent next month as inflation heads towards 8 per cent.

The Spring Statement was received poorly by many MPs and the public, leaving Sunak to drop heavy hints that he would come back with a more substantial package of support for hard-pressed families in the autumn Budget.

However, the drop in retail sales in February was also partly because of people eating and drinking out more rather than spending on grocery shopping.

Food sales dipped 0.2 per cent last month, while sales in off-licenses and tobacconists dropped 16.1 per cent in the month of February alone.

Further evidence of the squeeze on household finances came in the ONS bi-weekly survey of attitudes during the Covid crisis. It showed people reducing non-essential spending, with more than half of consumers cutting back to cope with higher prices.

The lifting of coronavirus restrictions in England at the end of January was another factor. Greater mobility drove fuel sales above their pre-pandemic level for the first time. In contrast, the proportion of retail sales online fell to 28 per cent in February 2022, its lowest since March 2020, but remained above pre-pandemic levels.

“More socialising as well as many of us returning to the workplace meant a good month for clothing and department stores with people looking to expand their wardrobes,” said Heather Bovill, the ONS deputy director for surveys and economic indicators.

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