Retail sales growth slowed sharply last month as households cut budgets ahead of Chancellor Rachel Reeves’ November budget and severe storms kept shoppers away from the high street.
Figures from the British Retail Consortium (BRC) and KPMG show retail sales rose 2.3% year-on-year in the five weeks to October 4, compared with 3.1% in the previous period. While the slowdown is still above the 12-month average of 2.1%, it highlights weakening consumer confidence ahead of the important holiday shopping season.
The BRC said speculation about a new round of tax rises had depressed consumer sentiment, while Storm Amy, which brought days of wind and rain to Scotland and northern England, continued to dampen visitor numbers.
Helen Dickinson, BRC chief executive, warned: “Rising inflation and a potentially strained budget are putting pressure on many households planning their Christmas spending.”
A separate BRC report this month suggested heavy rain may have played an even bigger role than budget concerns in the sales decline, with many high streets and retail parks reporting double-digit declines in footfall in early October.
There is growing concern in the industry that households will cut back during the holidays – traditionally the “golden quarter” when retailers make the majority of annual profits.
Inflation remains stubbornly high at 3.8%, its highest level in 19 months, while food inflation is at 5.1%, its highest since January 2024. This has reduced disposable income and curbed the desire to make discretionary purchases.
The BRC said grocery sales rose 4.3% year-on-year in the five-week period (vs. 4.7%), with the growth mainly driven by price increases rather than higher volumes.
Non-food sales – including apparel, home goods and technology – rose just 0.7%, compared with 1.8% the previous month. Electronics sales bucked the trend and were boosted by the release of the iPhone 17 and the new Apple Watch. However, demand for clothing and household goods remained subdued.
“Consumers are scaling back, prioritizing essentials and cutting back on larger purchases,” Dickinson said. “The holiday season will be a critical test of trust.”
Reeves is preparing a budget for November 26 that is expected to include up to £40 billion in tax rises, roughly the same size as her first budget last year. The Chancellor is reportedly trying to restore fiscal space, which has been eroded by weak growth and higher debt servicing costs.
Retailers remain cautious following Reeves’ October 2024 Budget, which increased employers’ national insurance contributions by £25 billion – a move that hit labour-intensive sectors such as retail and hospitality particularly hard.
Since then, the UK has cut around 150,000 payroll jobs, according to HMRC, with most of the losses concentrated in consumer-facing sectors already struggling with rising minimum wage costs and falling footfall.
Separate data from Barclays showed total retail spending fell 0.7% in September, driven by a sharp decline in non-essential purchases. Spending on public transport fell 2.6%, the biggest fall since the 2021 lockdown, largely due to strikes on the London Underground network.
A third of Londoners told Barclays they had cut their overall monthly spending due to traffic disruptions.
Still, some categories defied the slowdown. Spending on health, beauty and small luxury goods rose 9%, reflecting the so-called “lipstick effect” – when consumers seek affordable indulgences during tough economic times.
Economists warn retailers could face a subdued Christmas as persistent inflation and uncertainty over tax policy weaken household confidence.
“With stubborn inflation and a looming fiscal crisis, consumers are unlikely to loosen their purse strings until they know what to expect,” a retail analyst said.
The BRC said the sector was prepared for a difficult fourth quarter but remained cautiously optimistic that early promotional efforts and online sales events such as Black Friday could provide some relief.
“Retailers are doing everything they can to provide value for money and encourage holiday spending,” Dickinson said. “But it is clear that both the weather and the general economic climate are putting a heavy strain on the country’s coffers.”
