Retail sales volumes in the UK experienced a significant downturn in the year to August, according to the latest monthly figures from the Confederation of British Industry (CBI). The decline in consumer demand is occurring at a time when retailers are already contending with increased operational costs, including higher employer national insurance contributions and minimum wages.
The CBI reported that a balance of retail sales volumes fell to minus 48%, a steeper decline from minus 26% in July. This indicates that a substantial number of retailers saw their sales decrease rather than grow. Sentiment regarding the broader business environment also weakened, dropping to minus 29% in August from minus 15% in May.
A separate survey conducted by Barclays suggests a direct link between consumer behavior and high temperatures. The findings indicate that many shoppers are unwilling to frequent high streets when temperatures surpass 25°C, with the average UK adult considering 25.1°C the limit for comfortable shopping. This extended heatwave has thus contributed to the slump in retail activity.
Retailers are responding to these conditions by cutting back on investment and jobs. Martin Sartorius, CBI lead economist, noted that retailers became more downbeat in August due to sharply falling sales volumes. He urged the government to implement measures to restore confidence in the sector, emphasizing the need for "meaningful business rates reform" and a potential reduction in employer National Insurance Contributions (NICs) to support hiring and job creation, particularly for young people.
Beyond the immediate impact of the weather, retailers are facing pressure from rising living costs. Energy regulator Ofgem has indicated that typical annual energy bills could increase by approximately £60 to £1,723 by winter, influenced by global gas prices. Further forecasts from consultancy Cornwall Insight anticipate an even steeper rise to £1,872 in January. These rising costs for households are expected to further suppress consumer spending.
Economic forecasts also predict a rise in unemployment, potentially exceeding 5% this year, which is weighing on consumer confidence, according to S&P Global. While the heat has negatively impacted general retail, some sectors have seen benefits. Garden centers and retailers of cool summer clothing have experienced increased demand. Firms are also investing in cooling systems like air conditioning, leading to a 4.3% increase in cash inflows for air conditioning suppliers compared to the previous year.
Official figures from the Office for National Statistics have presented a mixed summer for the high street. Retail sales saw a 0.7% rise in June, partly driven by demand for seasonal items like cool clothing and barbecues, as well as air conditioning units. However, sales then fell by 0.5% in July, as consumers had already made necessary purchases to cope with the heat.