Press release

21 Oct 2022 London, GB

Challenges for the retail sector continue – EY ITEM Club comments

Martin Beck, Chief Economic Advisor to EY ITEM Club, comments on the latest news for the retail sector.

Related topics Growth

  • Retail sales volumes fell 1.4% month-on-month in September, driven primarily by food stores and non-store retailing. This adds to the challenges surrounding the UK consumer outlook from declining real household incomes and depressed consumer confidence. 

  • Retail's poor performance reinforces the EY ITEM Club’s expectation for a significant month-on-month fall in GDP in September. Granted, that month's extra public holiday will have exaggerated weakness in the economy. However, underlying headwinds mean the outlook for retailers is a poor one.

Martin Beck, chief economic advisor to the EY ITEM Club, says: “The general downward trend in retail sales volumes since the start of the year continued in September. Volumes fell 1.4% month-on-month, below the consensus forecast of a 0.5% decline. This left sales 2% down on the quarter with a 5th successive quarterly decline, and at the lowest level in 19 months. The breakdown of September's data offered little encouragement. All major retail categories experienced a fall in sales, with an especially significant fall in food sales, down 1.8% month-on-month, and non-store retailing, which fell 3%.

“The Energy Price Guarantee (EPG) will shield households from rising energy bills in the near-term. But consumers' real incomes are still on course to fall substantially, suggesting that retail weakness appears likely to persist for the rest of 2022 and into next year. September saw inflation climb to 10.1% and this morning's GFK release showed consumer confidence hovering around a 50-year low in October. If high gas future prices persist beyond April 2023 and the Government doesn't intervene, the outlook for the retail sector will be even more challenging. 

“September's poor retail performance reinforces the EY ITEM Club’s expectation that GDP fell markedly in the same month and over Q3. Admittedly, September had one fewer working day than normal, which will have exaggerated the economy's weakness, so there should be a mechanical bounce back in growth in Q4. However, underlying pressures mean GDP is likely to decrease over the first half of next year.”