© Reuters. FILE PHOTO-People shop on Oxford Street in London, Britain April 10, 2023. REUTERS/Anna Gordon/File Photo
LONDON (Reuters) – British retailers suffered from heavy rain in July on top of the impact of high inflation with sales growth dropping to an 11-month low, a survey showed on Tuesday.
The British Retail Consortium (BRC) said retail sales values rose by 1.5% compared with July last year, less than half the 12-month average growth rate of 3.9% and down from this year’s peak of 5.2% from February.
The data is not adjusted for inflation so July’s small rise in spending represented a fall in terms of sales volumes.
Britain’s consumers have so far largely weathered the hit to their spending power from last year’s surge in inflation and the Bank of England steadily raising interest rates, but analysts expect the toll to mount in the coming months.
The BRC said clothing and footwear retailers, which normally get a boost in summer, saw sales drop, contributing to a 0.5% fall in overall non-food sales in the three months to July.
Food and drinks sales grew at their slowest pace since the winter, also partly due to last month’s heavy rain.
Consumers have largely coped with the cost-of-living squeeze so far but “stubbornly high inflation coupled with rapidly rising interest rates will test their ability and willingness to keep on spending for the rest of this year,” Paul Martin, the UK Head of Retail at KPMG, which sponsors the survey, said.
The BRC said like-for-like retail sales, a measure favoured by equity analysts which adjusts for changes in retail space, increased by 1.8% in July, its slowest growth since last October and half the 12-month average of 3.6%.
Separate data from Barclays (LON:) painted a similarly weak picture with consumer spending on debit and credit cards growing by 4% in July in annual terms, slowing from 5.4% in June. Groceries spending rose by 5.2% in annual terms, weaker than June’s 9.8%, partly representing slower growth in prices last month.
But spending on entertainment was strong, bolstered by pre-sales for Taylor Swift and Foo Fighters concert tickets.
Abbas Khan, an economist at Barclays, said inflation’s hit to consumers was expected to abate in the rest of 2023 as price growth in energy and food eases.
“However, offsetting this, more households are set to experience higher mortgage costs,” Khan said. “Accordingly, while we do not expect a consumer recession in the coming quarters, growth is likely to be meagre.”
