Retail volumes fell 0.4% in September, more than forecast, and a GfK survey put consumer confidence at its lowest since April. The Bank of England, which decides on rates on 5 November, had said energy prices were not yet weighing on demand.
The first hard data on how households are coping with dearer energy and fuel suggests they are spending less, and the survey data says they expect to spend less again. Retail sales volumes in Great Britain fell 0.4% in September, the Office for National Statistics (ONS) reported on 23 October. Economists polled by Reuters had expected a 0.1% fall.16
Fuel flattered the total. Excluding it, volumes fell 0.7%, because drivers bought 2.2% more fuel as they refilled tanks, according to press reports of the release.5 The picture is not one of collapse: volumes rose 0.7% across the summer quarter and were 0.8% above a year earlier, and August’s rise was revised up to 0.7% from 0.5%.15 What worries economists is the survey published the same morning.
GfK’s October index fell 11 points to −24, its sharpest monthly fall since April 2020, with every component lower and consumers’ inflation expectations at their highest since April.4 Its consumer insights director, Neil Bellamy, called it “an extraordinary collapse”.4
The ONS pointed to weather. Clothing retailers said autumn and winter ranges sold poorly in an unseasonably warm month, and told the statistics office that footfall was lower and customers were cutting back; the Met Office has September as joint fourth-warmest on record.1 Supermarket volumes fell after rises in July and August, and an ONS statistician said food and drink sales over the quarter had been helped by the warm weather and the football World Cup.17
Prices matter too. Cash spending rose 0.3% while volumes fell 0.4%, which implies prices of what shops sell rose by about 0.7%, a rough desk calculation rather than an ONS figure.1 Brent crude hit a five-month high of $114.10 on Friday on fears the Middle East conflict will escalate.6 Our 24 October piece covers the energy cap; the 22 October piece covers the fuel-led jump in inflation.
GfK named no single cause, pointing to rising inflation, the Middle East conflict and the squeeze on household budgets.4 Reports of the same release add fears of tax rises in the Budget.5 “Demand hasn’t disappeared,” said Nicholas Found of Retail Economics, “but consumers increasingly need a compelling reason to spend.”4
The Bank of England is weighing a rise from 3.75% on 5 November because energy prices threaten to feed into wages and prices. In a 24 September speech, Deputy Governor Clare Lombardelli said higher energy prices “do not yet appear to be weighing significantly on demand”, but warned that demand “may weaken if energy prices remain high”.2 Weaker demand, she said, makes the trade-off harder: the Bank cannot lean against inflation and protect growth at once.2 September’s figures are the first sign that second half of her sentence may be arriving. Our 21 October piece sets out the vote count.
For the Chancellor, John Healey, the same data cut across his task. The Resolution Foundation argues he should rebuild fiscal headroom to at least £20 billion, mostly by raising about £8 billion in tax.3 Capital Economics expects real consumer spending and GDP to stagnate in the last quarter of this year and the first of 2027; Pantheon Macroeconomics forecasts growth slowing to 0.2% in the fourth quarter from 0.7% in the third.56 Retailers, whose most important weeks are ahead, bear it first.
Whether October brings a second fall. The ONS figure is one month and has been revised before; August moved up 0.2 points. Confidence surveys have also been poor guides to spending: GfK’s savings index rose, which could mean caution rather than lower outlays. No source on the record separates the effect of Budget fears from energy bills or the weather.
Healey delivers the Budget on Wednesday 28 October, with new Office for Budget Responsibility forecasts. He has said he wants to give households and businesses “breathing space”, according to press reports.4 The Bank of England’s Monetary Policy Committee announces its decision eight days later, on 5 November. The ONS publishes October’s retail sales on 20 November, the first reading after both.1