July could be the ‘calm before the storm’ for retailers and consumers after the heat wave boosted sales of summer clothes, picnic treats and electric fans despite the intensifying cost crisis of life, experts have warned.
Figures from the British Retail Consortium (BRC) revealed a 2.3% rise in sales last month compared to a 6.4% rise a year earlier.
BRC-KPMG’s latest sales monitor found that sales growth was largely driven by inflation, which is more than 9%, and masked a larger fall in the number of items sold.
Helen Dickinson, the chief executive of the BRC, said the summer was “an incredibly difficult period of negotiation”.
“Consumer confidence remains weak, and rising interest rates coupled with talk of a recession won’t do much to improve the situation,” he said.
“The Bank of England now expects inflation to top 13% in October when energy bills rise again, further tightening the screws on struggling households. This means both consumers and retailers are in for a tough ride through the rest of 2022.”
Some experts expect rising inflation to lead to a recession that could last into next year and hit millions of more vulnerable households, especially in the most deprived areas of the country.
The Bank of England predicted last week that inflation could top 13% by the end of the year, its highest since 1980, plunging Britain into recession.
Spending on clothing and other non-essential items has held up so far this year as warm weather and the opportunity to enjoy overseas holidays and large family events, particularly weddings, have supported in the savings made by many during the pandemic confinement.
However, Paul Martin, head of UK retail at advisory firm KPMG, said: “The summer could be the calm before the storm with conditions tightening as consumers return from summer vacation to holiday credit card bills, another energy price hike and interest rate hikes With cost-of-living headwinds stronger in horizon, consumers will need to prioritize essentials and discretionary spending on products will come under pressure.
“Consumers are determined to enjoy delayed vacations and an unrestricted summer. Cumulative demand, especially for new clothing, has so far been at levels significant enough to keep the overall retail sector in relatively good health.”
The continued spending trend was reflected by users of Barclaycard, one of the UK’s largest debit and credit card operators, which saw an increase in consumer spending on electronics (8.6%), clothing (4 %) and pharmacy, health and beauty (3.1%). %) in July compared to June.
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Hospitality and international travel both saw month-on-month declines, one of the first signs that families were cutting back on social plans amid the rising cost of living. However, spending in both categories was more than double last year.
Barclaycard said spending on essentials rose 7% in July compared with a year earlier, a step up from the 4% rise in June, boosted by fuel and supermarket purchases. Its card users spent 29.9% more on petrol and other fuels, while utility bills rose by 43.9%.
The pinch on consumers’ finances caused by these higher bills is expected to increase pressure on hospitality businesses, including restaurants and pubs, and others dealing in non-essential goods.
According to data from the Nationwide Building Society, shoppers are already switching to discount stores, abandoning brands in favor of supermarket own-brand products and cutting back on spending on luxuries such as subscription services and gambling.