18th Aug 2023 11:59
(Alliance News) - UK retail sales were worse than expected last month, with analysts questioning whether it was because of consumers contending with wet weather or the intensifying cost-of-living crisis.
"Slowing retail sales would normally be seen as a sign of consumer stress, but this feels more like a weather-related blip and it's unlikely the Bank of England will give these numbers anything more than a cursory glance when it comes to next month's interest rate decision," AJ Bell's Danni Hewson said.
The Office for National Statistics said retail sales fell 3.2% annually in July, compared to a downwardly revised 1.6% fall in June. The market had been expecting a 2.1% fall for July, according to FXStreet-cited consensus.
June's annual decline was first estimated at 1.0%.
From the previous month, sales fell 1.2% in July, compared to a downwardly revised 0.6% rise in June. July's reading was worse than market consensus, which had forecast a 0.5% decline.
June's rise was first reported as 0.7%.
"Food stores sales volumes fell by 2.6% in July 2023, with supermarkets reporting that the wet weather reduced clothing sales, although food sales also fell back; retailers indicated that the increased cost of living and food prices continued to affect sales volumes," the ONS said.
In light of the wet weather, shoppers opted for online shopping. 27% of retail sales took place online, rising from 26% in June. This was the highest proportion since the 28% seen in February 2022, the ONS noted.
"Online retailers enjoyed something of a boost as people chose to do what little shopping they required from the comfort of their homes, but even then cost-of-living pressures were acutely apparent," said AJ Bell's Hewson.
However, analysts debated whether the retail sales figures are a one-off blip from rain, or signs of pressure on household budgets.
Hewson said: "The Great British washout dealt a huge blow to retailers as would-be shoppers shunned soggy high streets. Unseasonably wet and cold weather meant there was no need for new summer togs as people instead ferreted out winter jackets if they were brave enough to leave the house at all."
Meanwhile, Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said it was due to a combination of "bad weather and consumers [continuing] to tighten their belts."
"The broad-based nature of the declines across most sectors suggests this is a consumer weakening on a large scale, rather than a sector-specific problem," Lund-Yates noted.
"The interesting element is the fall in food sales, which is an area where inflation has been running especially hot. The scope of changes to shopping habits on essentials like groceries speaks to the level of financial stress that's starting to feed through to consumers."
Looking ahead, Lund-Yates warned that the "worst of the squeeze on incomes is yet to be felt."
On the other hand, Helen Dickinson, chief executive of the British Retail Consortium, seemed more hopeful for the coming months.
Dickinson noted that the women's football World Cup final this weekend, as well as back-to-school shopping and university students ready themselves for the new academic year, should boost spending.
"Nonetheless, the economic backdrop will remain difficult, and government must find ways to create an environment that fosters economic growth," she noted.
On the back of the readings, UK retailers were under pressure.
In the FTSE 100, Frasers Group PLC was down 2.2%, JD Sports Fashion PLC down 2.0%, Kingfisher PLC down 1.8%, and Associated British Foods PLC down 1.3%.
Among London's small-caps, Superdry PLC shed 5.7%, Card Factory PLC lost 5.0%, and Asos PLC was down 4.0%.
By Sophie Rose, Alliance News reporter
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