Current backdrop for UK retail sector is "painfully uncertain"

(Alliance News) - UK data on Friday painted an underwhelming picture of the retail sector, with the ongoing cost of living crisis keeping a lid on sales, while the outbreak of conflict in the Middle East gives consumers more worries with which to contend.

UK retail sales were markedly weaker than expected last month, hurt by cost-of-living pressure and unseasonably warm weather, numbers showed.

According to the Office for National Statistics, retail sales volumes declined 1.0% year-on-year in September, easing from a 1.3% decline in August. However, retail sales had been expected to be flat on-year, according to FXStreet cited consensus.

Retail sales declined 0.9% in September from August, falling short of consensus. A monthly decline of 0.1% was forecast, according to FXStreet. In August, retail sales had fallen 0.4% from July.

Analysts at Lloyds Banking Group commented: "That is the second decline in the last three months suggesting that after a period of stronger than expected growth in the first half of the year spending may now be faltering."

ONS said the monthly outcome was hurt by continuing cost-of-living woes and unseasonable September weather.

Ebury analyst Phil Monkhouse commented: "A sizzling September scorched the high street to depress retail sales as shoppers put off refreshing their wardrobe. Lingering economic uncertainty is likely to have seen households shy away from big ticket, luxury items too providing another headwind to sales. Consumers are likely to reminded of the historically sky-high cost of energy as we head towards heating season, which will further dent confidence.

"It creates a painfully uncertain environment for retailers as we hurtle towards Black Friday, the festive period and the January sales. Those who are able to retain quick access to capital, robust hedging arrangements to counter any fluctuations in currency and have built up decent levels of stock are likely to thrive in this shaky landscape."

Consumer confidence data for October similarly underwhelmed. Morale has plunged in the run-up to the festive season as uncertainties posed by conflict in the Middle East add to accelerating energy, fuel and mortgage costs.

GfK's long-running consumer confidence index fell nine points to minus 30 in October, taking it back to a level last seen in July last year.

The index's major purchase measure – an indicator of confidence in buying big ticket items – saw the sharpest drop of 14 points, in a significant turnaround from last month's four-point increase which will concern retailers in the run-up to Christmas.

Analysts at Shore Capital Markets added: "We expect the UK consumer confidence to follow geopolitics whilst retail sales in October and November will be conditioned still by inflation, so higher value over volume, noting that rising forecourt prices will nip into everyday consumables from the fringes.

"The UK consumers' mood has also stepped down, whether this reflects global events remains to be seen, we sense so, but as we have indicated, the warm weather impact upon apparel aside, many shoppers are, we believe, behaving carefully with their monies ahead of Christmas, noting now rising UK living standards."

By Eric Cunha, Alliance News news editor

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