- UK retail sales volumes defied expectations by rising in July – only the second month in 2022 so far to record an increase. But with the squeeze on shoppers' spending power from high inflation intensifying and consumer sentiment low, the outlook for retailers still looks downbeat.
- Online sales more-than accounted for July's 0.3% month-on-month rise in retail volumes, aided, according to the ONS, by promotions. But some of the other major retail sub-sectors saw sales fall. In particular, high fuel prices appear to be prompting a significant fall in demand.
Martin Beck, chief economic advisor to the EY ITEM Club, says: “The downward trend in retail sales volumes over most of 2022 saw a reversal in July. Sales rose 0.3% month-on-month (m/m) following a downwardly revised 0.2% fall the previous month. This beat consensus expectations of a decline and was only the second monthly rise in the year-to-date. Growth in total volumes was more than accounted for by non-store retailing, predominately online retailers. According to anecdotal evidence cited by the ONS, this was aided by promotions.
“But the performance of some other retail sub-sectors was less impressive. Food sales eked out a rise of 0.1%, with the reversal of the boost from June's Platinum Jubilee celebrations perhaps holding down growth. Non-food store sales fell 0.7%, while the impact on demand from higher prices was particularly evident in the sale of fuel, where volumes fell a further 0.9% in July. This left fuel sales 4.1% down on the level at the start of the year, versus a 1.7% fall in overall retail volumes.
“July's rise in retail sales is likely to prove only a temporary respite from recent weakness as we move through 2022 and into next year. Granted, unemployment being very low and household balance sheets, in aggregate, appearing healthy mean there are some positives. But the EY ITEM Club expects the typical household energy bill to rise by around 80% in October, pushing inflation even further into double figures and exerting an ever-more severe squeeze on households' spending power. And the continued gloomy economic news is translating into low consumer sentiment – this morning's GfK release showed confidence falling to a new record low in August.”