UK retail sales fell unexpectedly in February, raising fears that soaring inflation could dampen the UK’s economic recovery even before Russia’s invasion of Ukraine begins.
While the amount of money spent by shoppers on the high street was 0.7% more last month than in January, the amount of goods bought fell by 0.3%, underlining the effect of the inflation on household finances.
Economists said the figures underline fears of a slowdown in economic growth before petrol prices rise further following the war in Ukraine and rising gas and electricity bills next week when Britain’s energy price cap is lifted.
Philip Rush, founder of consultancy Heteronomics, said the rise in spending in February had been more than entirely absorbed by rising prices. “In this type of environment, consumers have to pay more for essential items, which crowds out what they can afford,” he said.
Sales of big-ticket items, such as furniture and other durable consumer goods, are the most vulnerable, with people’s appetite for major purchases dropping sharply, according to consumer research firm GfK.
In March, Britain’s consumer confidence index fell 5 points to minus 31, its lowest level in 17 months, and a stark indication that Britons’ appetite for spending is waning.
Joe Staton, director of GfK, said “a wall of worry confronts consumers” with the outlook for personal finances and consumer confidence likely to deteriorate. “There’s definitely more bad news to come,” he said.
The first signs of a drop in spending appeared even before the cost of living crisis was fully felt.
The official forecast for the coming fiscal year, which begins in April, in Wednesday’s spring release showed the biggest drop in real household disposable income since comparable records began in 1956.
Samuel Tombs, an economist at Pantheon Macroeconomics, said the February retail sales figures showed that “the squeeze in real household disposable income is already draining the momentum of the economic recovery.” He noted that sales volumes fell 1% below their average level in the second half of 2021.
“Consumers face a rocky road, with energy price cap hikes and NI [national insurance] contributions coming next week,” said Helen Dickinson, chief executive of the British Retail Consortium.
As the cash amount of household spending rises, bringing flooded tax revenues to the Treasury, Rishi Sunak, Chancellor of the Exchequer, has decided not to use the windfall to protect vulnerable households on benefits and pensioners, leaving to rise 3.1% next month as inflation heads towards 8 percent.
The spring statement was poorly received by many MPs and the public, leading Sunak to hint that he would return with a more substantial package of support for struggling families in the fall budget.
However, February’s drop in retail sales was also partly due to people eating and drinking more than spending on groceries.
Grocery sales fell 0.2% last month, while sales at unlicensed stores and tobacconists fell 16.1% in February alone.
Further evidence of the squeeze on household finances came from the ONS’ bi-weekly survey of attitudes during the Covid crisis. It showed people were cutting back on non-essential spending, with more than half of consumers cutting back to cope with higher prices.
Another factor was the lifting of coronavirus restrictions in England at the end of January. Greater mobility pushed fuel sales above their pre-pandemic level for the first time. In contrast, the proportion of online retail sales fell to 28% in February 2022, its lowest since March 2020, but remained above pre-pandemic levels.
“More socializing as well as many of us returning to the workplace meant a good month for clothes and department stores with people looking to expand their wardrobes,” said Heather Bovill, deputy director of the ONS for surveys and economic indicators.