Retail sales slide, as UK consumer confidence is hammered by inflation – business live

Bank of England governor Andrew Bailey has predicted inflation will fall this month.

Speaking to the Belfast Telegraph, Bailey said October’s inflation figures, due in a month’s time, is expected to show a “noticeable drop” in the headline rate of price rises.

The sharp rise in energy prices last year will fall out of the annual inflation comparison, while Ofgem’s energy price cap means average bills fell this month.

Bailey also said that September’s inflation figures, which were released on Wednesday, were not far off what the BoE expected – even though the CPI measure of rising prices stuck at 6.7%.

He said:

“We were not expecting much change in inflation.

It was not far off what we were expecting. Core inflation fell slightly from what we were expecting and that’s quite encouraging”.

Bailey also told the Belfast Telegraph that the Windsor Framework has brought “confidence” to Northern Ireland, after meeting with businesses in Newry.

The pound has dropped this morning, suggesting some traders think the fall in retail sales makes another increase in interest rates less likely.

Sterling is down half a cent against the US dollar at $1.2094.

Neil Birrell, chief investment officer at Premier Miton Investors, says the Bank of England will welcome the fall in consumer spending, as it tries to bring inflation down to its 2% target (it was 6.7% last month):

“After sticky UK CPI data showed food price inflation slowing, but rising petrol prices negating it, retail sales slowed more than expected in September. It’s not surprising to see the consumer sector under pressure given what has been thrown at it.

This data will be seen as good news by the Bank of England, although it’s unlikely to be a major factor in their policy decisions.”

Britain is facing “the start of another retail recession”, warns consultancy group Capital Economics.

Following the 0.9% drop in retail sales volumes last month, their assistant economist Alex Kerr explains:

The 0.9% m/m fall in retail sales volumes in September meant sales volumes fell 0.8% q/q in Q3 and suggests that after the 18-month-long retail recession came to an end in Q1, the sector may already be back in recession.

And as the drag on activity from higher interest rates intensifies, we still think that real consumer spending will decline by 0.5% from its peak to its trough over the coming quarters.

Grant Fitzner, chief economist at the ONS, says:

“Retail sales fell notably in September with retailers telling us that cost of living pressures are influencing consumers, particularly for sales of non-essential goods.

“It was a poor month for clothing stores as the warm autumnal conditions reduced sales of colder weather gear.”

Newsflash: Retail sales across Great Britain have fallen by more than expected last month, underlying the drop in consumer confidence flagged by GfK this morning.

Retail sales volumes fell by 0.9% in September 2023, following a rise of 0.4% in August 2023, new figures from the Office for National Statistics show.

That’s worse than expected – economists had forecast a 0.2% monthly fall.

On an annual basis, sales volumes were 1% lower than a year ago (although inflation meant that people actually spent 4.7% more, but got fewer items).

The squeeze on household budgets hit spending, while demand for autumn clothing was weak due to warm weather in September

The ONS says:

Non-food stores sales volumes fell by 1.9% in September 2023; retailers reported that the fall over the month was because of continuing cost of living pressures, alongside the unseasonably warm weather reducing sales of autumn-wear clothing.

GfK’s major purchase measure – an indicator of confidence in buying big ticket items – saw the sharpest drop of 14 points in October.

That is a significant turnaround from last month’s four-point increase – something that will concern retailers in the run-up to Christmas.

Confidence in personal finances over the next 12 months fell six points to minus eight, although it remains 26 points higher than this time last year, while expectations for the general economic situation over the coming year has fallen by eight points to minus 32 – 29 points higher than last October.

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UK consumer confidence has tumbled this month as households grow more nervous about the propects for their personal finances and the wider economy.

The latest gauge of consumer optimism from GfK dropped to a three-month low of -30 in October, down from September’s reading of -21.

Joe Staton, client strategy director at GfK, says confidence has fallen because many households are struggling to meet bills, such as mortgage payments and rents.

“This sharp fall underlines that the cost-of-living crisis, and simply not having enough money to make-ends-meet, are still exerting acute pressure for many consumers.”

Staton adds that there is “growing unease” among consumers, citing the…

“fierce headwinds of meeting the accelerating costs of heating our homes, filling our petrol tanks, coping with surging mortgage and rental rates, a slowing jobs market and now the uncertainties posed by conflict in the Middle East”.

Michael Hewson, chief market analyst at CMC Markets, says:

The lagging effect of higher mortgage rates, along with rising prices at the pump as well as the horrific events in the Middle East hammered sentiment.

Data earlier this week showed that UK inflation failed to fall as expected last month, while wages are rising faster than prices after a two-year squeeze.

Also coming up today

The latest UK retail sales figures, due at 7am, will give another insight into consumer spending.

Inflation fears are also hitting market confidence, as investors fear that central banks will maintain the squeeze of higher interest rates for longer.

Yesterday, America’s top central banker, Jerome Powell, warned that US inflation was “still too high”, but also appeared to hint that the Federal Reserve could leave interest rates on hold again next month.

The agenda

• 7am BST: UK public finances for September

• 7am BST: Great Britain’s retail sales for September

• 1.30pm BST: Canadian retail sales for September

• 2pm BST: Patrick Harker, president of the Federal Reserve Bank of Philadelphia, gives a speech