Cost of living pressures weigh on retailers as sales volume drops 1.6%

Cost of living pressures weigh on retailers as sales volume drops 1.6%

The Office for National Statistics (ONS) has reported a fall in retails sales volume of 1.6% for August continuing a downward trend since summer 2021 and significantly worse than expectations.

This follows the lifting of restrictions on hospitality which has likely caused a shift in where consumers are spending their money. Additionally, in recent months, rising prices and cost of living have affected sales volumes. 

The forthcoming energy bill support to households means the outlook for retailers isn’t as downbeat as would have been the case otherwise. But with real household incomes still expected to fall, the retail recession is likely to persist over the rest of this year and into 2023.

Martin Beck, chief economic advisor to the EY ITEM Club, commented: “The downward trend in retail sales volumes – which began earlier this year and was interrupted by a surprise increase in July – resumed in August.

“Volumes fell by a notable 1.6% month-on-month, much greater than consensus expectations of a 0.5% decline. This left sales 5.4% down on a year earlier and at the lowest level since February 2021. The details of August’s numbers offered no bright spots either.

“All the major retail categories saw sales fall, with a particularly significant decline in department store sales (down 2.7%) and fuel (down 1.8%).

Regarding the impact of the energy cap, Mr Beck said: “The EY ITEM Club now expects CPI inflation to peak at below 11% in October. Had the cap not been introduced, inflation was likely headed for 14-15% early next year.

“However, real household incomes are still on course for a significant fall over the next 12 months or so. And with unemployment likely to rise, if modestly by the standards of past downturns, and the geopolitical outlook also full of uncertainties, confidence is unlikely to see much of a revival.

“So, the recession which retailers currently find themselves in is likely to persist through the rest of this year and into 2023.”

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