A Blow Before the Budget: British Retail Sales Fall More Than Expected as Consumer Confidence Slides

Retail sales in Great Britain fell more steeply than expected last month, in the latest negative economic update before Chancellor John Healey announces his budget next week. With struggling households cutting back, sales declined across almost every part of the industry.

The Office for National Statistics (ONS) said the volume of goods sold fell 0.4% month on month in September, much steeper than the consensus forecast among economists of a 0.1% fall — four times worse than expected. The figures also show that consumer confidence in the UK has fallen at the fastest rate since the Covid pandemic.

A major factor behind the drop was weak online trading. Unseasonably warm weather last month hit online sales of autumn and winter clothing. Non-store retailing, predominantly online sales, fell 2.2% month on month, the biggest percentage fall across the retail sector.

The sector-by-sector picture was broadly the same. Textile, clothing and footwear stores recorded a 0.9% fall, household goods retailers were hit by a 0.5% slump, and supermarkets dipped 0.4%, partly because of poor sales of clothing ranges due to the weather.

There were only two exceptions. The volume of motor fuel sold soared 2.2% month on month in September, despite prices at the pump climbing to record highs and returning to levels last seen before the start of the conflict in the Middle East. In value terms, the 6.1% increase in fuel sales is the biggest month-on-month rise since the 10.9% recorded in March, the month immediately after the start of the US-Iran conflict. Stripping out the boost from fuel, retail sales slumped 0.7% month on month — far worse than the 0.1% fall forecast by the City.

Department stores were the only sector apart from fuel to record an increase, with the volume of goods bought rising 0.2% compared with the previous month. But that modest gain does little to change the overall picture.

Paul Dales, chief UK economist at Capital Economics, said: "October's sharp fall in consumer confidence and the dip in retail sales volumes in September show that times are getting tougher for households just as the all-important festive period for retailers is just around the corner." He added that this supports his firm's view that both real consumer spending and real GDP will grind to a halt in the fourth quarter of this year and the first quarter of next year. He also said a fall in consumer confidence of this kind makes the prime minister less likely to call an early election soon.

The quarterly picture is somewhat better. The monthly fall follows a bumper August, with the ONS revising the figures up from a 0.5% monthly rise to 0.7%, helping quarterly sales increase to 0.7% year on year.

Hannah Finselbach, a senior statistician at the ONS, said: "Retail sales grew in the latest quarter, with growth led by motor fuel, which, despite recent price increases at the pump, has now returned to monthly sales levels last seen before the start of the conflict in the Middle East. Food and drink sales also contributed to growth in the quarter, partly helped by the warm weather and the World Cup, although they fell back slightly in September."

Taken together, the figures are uncomfortable reading for the government on the eve of the budget. With pump prices at record highs, consumer confidence falling at its fastest pace since the pandemic, and households tightening their belts just before the festive season, the chancellor's challenge is to deliver a budget that can pull the economy away from stagnation.