Fall in retail sales suggests faltering economic recovery

Retail sales fell unexpectedly last month in another sign that Britain’s economic recovery is slowing, official figures show.

Sales dropped by 0.2 per cent in September, according to the Office for National Statistics (ONS). This was worse than the 0.5 per cent rise forecast by economists. Despite the fall, retail sales are still 4.2 per cent higher than they were in February last year, before the first lockdown.

The retail sector rebounded strongly from lockdown as the reopening of shops led to a boom in spending on goods. Households are still spending a higher proportion of their income on goods instead of services, such as eating out or holidays. There are signs, however, that they are starting to rebalance their spending habits.

“Household goods were the main driver of this month’s decline with a fall of nearly 10 per cent, while food sales ticked back up after falling last month,” Darren Morgan, an ONS statistician, said.

Retail sales volumes have now fallen for six months in a row, marking the longest period of consecutive monthly falls since the series began in February 1996. They would have fallen more sharply last month were it not for a 2.9 per cent monthly increase in petrol sales as panic-buying took hold across the country. Excluding fuel, retail sales were down 0.6 per cent on the month.

Economists said that the retail sector would continue to struggle over the coming months as rising coronavirus infection rates and widespread shortages would continue to weigh on demand.

Bethany Beckett, economist at Capital Economics, said: “The 0.2 per cent month-on-month fall in retail sales volumes in September offers more evidence that the economic recovery is fast running out of steam . . . Given the backdrop of continued shortages and rising Covid-19 infections, we suspect that retail sales growth will continue to be weak in the coming months.”

Samuel Tombs, economist at Pantheon Macroeconomics, said that consumer spending was likely to suffer as household budgets would be squeezed over the coming months. “Retail sales probably will rebound in October, as consumers purchase Christmas presents earlier than usual due to concerns about product availability,” he said. “Nonetheless, real household disposable income looks set to drop by about 1.5 per cent quarter-on-quarter in Q4 as labour income declines in response to the end of the furlough scheme, universal credit payments are reduced by £20 per week and CPI inflation rises further.

“After a brief respite in Q1, households then will be hit in April by the 1.25 percentage point increase in the rate of employees’ national insurance contributions, which will reduce real household disposable income by about 0.5 per cent, as well as by a 30 per cent increase in Ofgem’s energy price cap.”