According to research by McKinsey & Co., British consumers are at “maximum pessimism”, meaning they are the most optimistic about the country’s post-pandemic recovery since March 2020.
The main driver of this sentiment is rising prices for essential items, with more than 90% of consumers seeing a change in the cost of their weekly grocery basket in March and April.
Measures of consumer confidence indicate what people think about the future. But there is growing evidence that this is already starting to weigh on actual spending.
Sales weakened in April, according to the British Retail Consortium and KPMG’s Retail Sales Monitor. Although this figure compares to the period a year ago, when consumers were releasing pent-up demand after stores reopened, it is clear that spending is declining. With total sales down 0.3% in April and inflation estimated at 9.1% that month, this implies a sharp drop in the volume of goods sold.
It’s a similar picture when it comes to eating and drinking in pubs and restaurants. While sales are still up from 2019, according to the Coffer CGA Business Tracker, which measures industry performance, they have been slowing since Easter. Additionally, the 2% growth in April was likely driven by higher menu prices, masking some of the early signs of reduced consumer spending.
Part of the change may be due to pandemic habits unraveling and Britons returning to their pre-lockdown preferences. In April 2021, for example, they were ready to freeze in the beer gardens just to enjoy a pint in a pub. The end of Covid restrictions may have made this less of a priority in 2022. Likewise, online sales are cooling as shoppers return to malls and high streets once again.
Big ticket items were the hardest hit by the slowdown in April, according to the BRC and KPMG. Many Britons have freshened up their homes when they spent much of their time there. Now, furniture sales are suffering. Additionally, the industry is experiencing price hikes as items are usually large and expensive to ship in containers. Made.com Group Plc, the online home furnishings retailer, warned of earnings on Monday after trading volatility, and estimated the digital furniture market as a whole was down 30-40 % so far this year.
Data from Barclaycard showed that consumer spending on credit and debit cards increased by 18.1% in April, compared to the corresponding period in 2019, marking the biggest increase since October 2021. However, this was largely due to holiday bookings. International travel had its best month since before the Covid-19 outbreak. In contrast, spending in some other categories, such as nightlife, takeout and subscriptions, all saw smaller increases than in March.
This holiday spending can also help fashion: many consumers haven’t bought a new bikini or strappy sandals in several years. But it is likely to suck money from many other sectors of the economy.
Even though the true health of the UK consumer is clouded by post-pandemic changes, it is clear that the country’s economic backdrop is about to deteriorate.
While household energy bills rose for many in April, the real effect won’t be felt until the fall when heating continues. At the same time, savings may be depleted by travel, and there is also the potential for further interest rate hikes and any increase in unemployment if inflation cools the burning job market.
Fashion retailers typically lament a warm fall because it means less demand for expensive coats, sweaters and boots. This year, if Brits can keep their heating off for longer, the off-season temperatures could be a blessing.
More from Bloomberg Opinion:
• The City of London doesn’t need a regulatory restart: Paul J. Davies
• Boris Johnson focuses on the wrong problem in Northern Ireland: Therese Raphael
• Why I am bullish on Britain and betting on its future: Michael R. Bloomberg
This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Andrea Felsted is a Bloomberg Opinion columnist covering consumer goods and the retail industry. Previously, she was a reporter for the Financial Times.
More stories like this are available at bloomberg.com/opinion