Wet weather dampens July's UK retail sales but slowdown likely a blip

(Alliance News) - The UK retail sector had a tricker month in July, with wet weather doing "no favours" for clothing sales, but analysts argued the slowdown in sales is likely just a "blip".

According to the latest British Retail Consortium and KPMG sales monitor on Tuesday, sales rose 1.5% on-year last month, below the three-month average growth of 3.5%. Sales growth eased from 2.3% a year earlier.

July's rise was the weakest year-on-year growth in retail sales since August 2022, according to the BRC. Retail sales had risen 4.9% on-year in June.

On a like-for-like basis, retail sales rose 1.8% in July, trailing the three-month average growth rate of 3.3%. Like-for-like growth picked up from the 1.6% seen a year prior, however.

BRC Chief Executive Helen Dickinson said: "The slowing pace of retail price inflation fed through into slower sales this July. Spend was further depressed by the damp weather, which did no favours to sales of clothing, and other seasonal goods. Online spending was down again year-on-year as the post Covid trend back to stores continued, leading to the lowest proportion of non-food sales online since the pandemic began."

Over the three months to the end of July, non-food sales fell 0.5%, a 0.8% decrease like-for-like.

Online non-food sales were 6.9% lower last month, steeper than the three-month average fall of 3.4%, as the pandemic era e-commerce boom continues to dwindle.

Michael Hewson, chief market analyst at CMC Markets, said it was "clear" that consumers are now spending their money much more carefully as Bank of England interest rate hikes continue to bite on incomes.

"With some consumers approaching a cliff edge as their fixed rate terms come up for expiry, they may well be saving more in order to mitigate the impact of an impending sharp rise in mortgage costs," he cautioned.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, was more upbeat on the forward trajectory of UK retail sales, meanwhile.

"We expect the pullback in spending in July to be just a blip, given the outlook for a recovery in households' real disposable income in the second half of this year," he said.

"July's 17% fall in households' energy bills has boosted disposable incomes by about 0.8 [percentage points], while goods prices now appear to be rising less quickly than wages.

"Admittedly, some households will prioritise either replenishing their savings buffer or paying off debt, but we doubt that they will reduce spending to do so. On balance, then, we think that households' real expenditure will be about 1.0% higher than a year ago in [the fourth quarter], slightly less than the increase in real disposable incomes."

Analysts at Peel Hunt agreed, adding: "Comparatives drop away into August, suggesting [year-on-year] data should pick up as summer closes. Back-to-school and early autumn trading will likely be key to assessing the continued resilience of consumer spending."

By Heather Rydings, Alliance News senior economics reporter

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