Retail sales smash expectations despite a drop in consumer confidence

Retail sales in the UK blew past expectations in August, climbing to their highest level since July 2022, according to the Office for National Statistics (ONS).

Sales were up one per cent compared to the previous month, beating analysts’ predictions of a 0.4 per cent rise. The increase builds on July’s return to growth, which saw a 0.5 per cent rebound after previous declines.

Core retail sales, which don’t include motor fuel, saw an even greater boost, rising by 1.1 per cent, outperforming both the prior month’s 0.7 per cent growth and market forecasts of 0.5 per cent.

On a year-on-year basis, sales volumes in August grew by 2.5 per cent – the biggest annual rise since February 2022, and just 0.4 per cent shy of the pre-pandemic levels seen in February 2020.

Core retail sales also saw a notable 2.3 per cent increase over the same period, a significant improvement from July’s 1.4 per cent rise.

Supermarkets enjoyed a significant boost, with food sales jumping 1.8% as consumers flocked to stores. Clothing sales also lifted, driven by back-to-school promotions.

Matt Jeffers, retail strategy and consulting managing director for Accenture, said retailers would now be gearing up for the ‘Golden Quarter’ – the 100 day count down to Christmas which includes key dates like Halloween, Black Friday and Cyber Monday.

He said: “The warmer weather saw brands benefit from strong performances in food and clothing sales in particular.

“With Autumn now upon us, September will see new demands for seasonal trends in clothing and food as temperatures cool off and days shorten.

“Many will now be in a balancing act of discounting summer stock to clear shelves and maintain growth, whilst retaining profit margins.

“After a nearly a year of inconsistent results without sustained growth, retailers will be looking to capitalise on the changing season, especially with the Golden Quarter on the horizon.

“Heading into the final few months of the year, their focus will be on competitive pricing, targeted promotions, and enhancing the in-store and online shopping experience to win over discerning consumers.”

Retail sales defy consumer confidence

Despite encouraging retail figures, the collapse in consumer confidence for September has raised alarm bells across the UK economy.

According to GfK’s consumer confidence measure, sentiment plummeted to -20 from -13 in August, the lowest level since March.

Fewer consumers felt positive about their own financial position in September compared to August, and many reported being less likely to make large purchases.

The decline in confidence reflects ongoing economic uncertainty, including rising unemployment and persistent inflation, particularly in service sectors.

The Bank of England’s more cautious stance compared to other central banks, and the expectation that interest rates will remain high, is also weighing on consumer sentiment.

Looking ahead, the prospect of a tough budget on October 30, which could include tax increases, is further unsettling the public.

There is speculation about whether Chancellor Rachel Reeves will ease her stance, especially after the Treasury received a £10bn windfall from the Bank of England.

However, early reports suggest she remains committed to scrapping the winter fuel allowance, prioritising debt reduction over immediate consumer relief.