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UK retail sales plunged more than expected in March as the cost of living crisis weighed on incomes and consumers braced for higher taxes and energy bills.
The volume of goods sold in stores and online fell 1.4% after falling 0.5% in February, the Office for National Statistics said on Friday. Economists had expected a decline of 0.3%. Sales excluding automotive fuel fell 1.1%.
A separate GfK survey showed UK consumer confidence fell for a fifth consecutive month in April, with Britons more pessimistic about the outlook for their personal finances and the broader economy than during the depths of the financial crisis. . Bloomberg Economics said the numbers pointed to a recession.
Wages are increasingly lagging the rate of inflation, which hit a 30-year high of 7% in March. Households took another hit this month when energy bills and payroll taxes rose sharply. Together, the shock is expected to deal the biggest blow to living standards in at least six decades.
The drop in retail sales was led by sales of food, clothing and footwear, and automotive fuel. Record petrol and diesel prices, pushed up by war in Ukraine, have led people to take fewer non-essential journeys.
Online sales also fell sharply to 26%, the lowest proportion of overall sales volume since February 2020, as people reduced their discretionary purchases.
The impact was partially offset by increased sales of household goods, driven by sales of DIY and second-hand items, itself a possible sign of British savings.
What Bloomberg Economics says…
“We expect consumer spending to come under further pressure in the coming months given the relentless pressure on incomes. The cost of living crisis is expected to worsen in April, with rising energy bills as well as tax hikes.We now expect inflation to reach 9% at that time.
–Economist Niraj Shah. Click here for full REACT
Consumers also face the prospect of higher mortgage costs as the Bank of England raises interest rates in a bid to tame inflation.
Policymaker Catherine Mann said on Thursday she was focused on demand resilience in the face of compressing inflation as she weighed whether, and how much, to vote to raise rates by May. She noted that the data suggested that “consumers were looking to the future, which would translate into a period of weaker demand growth, if not a downturn.”
A separate ONS survey found that 87% of adults said their cost of living had risen in the past month, up from 83%. Some 88% said the reason was an increase in food prices.
The outlook for retail sales and the economy in general will depend on the willingness of households to use the savings accumulated during the pandemic to cushion the blow.
This is not an option for the poorest families, who will be forced to borrow to maintain their standard of living or buy fewer goods and services. Economists in a regular Bloomberg survey put the risk of a recession in the coming year at 30%, the highest since the start of 2021.
“Retailers themselves are caught between rising operating costs, exacerbated by the situation in Ukraine, and falling customer demand,” said Helen Dickinson, chief executive of the British Retail Consortium. “Rising global commodity prices, rising energy and transport costs and a tight labor market are taking their toll. As a result, retail prices are likely to continue to increase during 2022.”
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