UK surprise retail recovery as consumer confidence hits rock bottom

A small recovery in April retail sales was driven by strong alcohol sales and fashion, despite consumer confidence in the UK hitting rock bottom.

The figures released on May 20 suggest that more people at staying at home rather than going out as inflation drives prices upwards in pubs and restaurants, that combined with the warmer weather saw much better than expected alcohol and fashion sales.  

Economists had predicted a slight fall after a dip of 1.2% in March, in anticipation of rising bills in the growing cost of living crisis.

Heather Bovill, ONS Deputy Director for Surveys and Economic Indicators, said: “Retail sales picked up in April after last month’s fall. However, these figures still show a continued longer term downward trend.

“April’s rise was driven by an increase in supermarket sales, led by alcohol and tobacco and sweet treats, with off-licences also reporting a boost, possibly due to people staying in more to save money.”

Consumer confidence

A survey of 2,000 people, carried out by market research firm GfK, said that its consumer confidence gauge sunk to a score of -40 in May, down from -38 in April and -9 a year ago. That is the worst level in 50 years.

The GfK study was undertaken in May, suggesting that the higher bills expected during the month had resulted in the less than happy picture. The low consumer confidence also suggests that May’s retail figures could be down with the increase in the energy price cap having come into effect.

The continued rise in inflation is also expected to have hit pockets, with the cost of petrol and many basic staples having gone up.

Joe Staton, Client Strategy Director at GfK, told Sky News: “Consumer confidence is now weaker than in the darkest days of the global banking crisis, the impact of Brexit on the economy, or the COVID shutdown.

“The outlook for consumer confidence is gloomy, and nothing on the economic horizon shows a reason for optimism any time soon.

“Even the Bank of England is pessimistic, with Governor Andrew Bailey this week offering no hope of tackling inflation.”

Staton added that consumers increasingly feel that now is not a good time to make big purchases like furniture and white goods.

Retail sales, inflation and recession

A number of economists believe that the UK is headed into a recession driven by high inflation, falling consumer confidence and continuing supply chain issues.

Andrew Goodwin, Chief UK Economist at the consultancy firm Oxford Economics, said “The record low is the natural consequence of the sharp rise in inflation and increase in personal taxation.

“Consumers are now able to see what the rise in the energy price cap, the rise in NICs [National Insurance contributions] rates and the freeze in income tax allowances and thresholds means for their finances.”

He continues saying that the increase in consumer spending in the first quarter was “underwhelming” adding: “We expect consumer spending to fall in each of the remaining three quarters of the year, leaving the consumer sector in recession.

“We see only limited scope for lower saving to cushion the blow so, given the government remains unwilling to provide additional support, the squeeze on household finances will be so great that it’s hard to see how we can avoid falling consumer spending.”

Cost of living

The Shadow Exchequer, Abena Oppong-Asare, said that consumer confidence had hit a record low because of the “double whammy of a Conservative cost-of-living crisis and a Conservative economic growth crisis.

“Families across the country are being hit by soaring bills and rising prices, but the chancellor still won’t act.

“To improve consumer confidence, Labour are calling on the government to urgently bring forward an emergency budget, with a windfall tax on oil and gas producer profits to lower bills for families and support energy intensive industries.

“Our plans to cut taxes for small business would save firms up to £5,000 this year.”

The British Chambers of Commerce (BCC) have added to calls for an emergency budget, saying it wants to see National Insurance contributions for businesses lowered from 15.05 per cent to 13.8 per cent, the point at which they were before April. They have also called for a cut in VAT on energy bills and free Covid-19 tests to help small businesses.

Hannah Essex, Co-executive Director of the BCC said: “Businesses are telling us that the rise in National Insurance contributions has been a body blow as they try to get back on their feet.”

A Treasury spokesperson told Sky News: “We’re taking decisive action to tackle the NHS backlog and fix the social care crisis – something governments have ducked for decades. The smallest 41 per cent of firms are not affected at all by the Health and Social Care Levy, and the next 40 per cent are seeing wage bills rise by less than 1 per cent.

“We provided businesses with an unprecedented package of support that saved millions of jobs throughout the pandemic – and have since gone further, cutting taxes for hundreds of thousands of firms through an increase to the Employment Allowance, slashing fuel duty and halving business rates for eligible high street firms.

“We continue to support businesses with tax incentives like the Annual Investment Allowance and the super-deduction, the biggest business tax cut in modern British history, as well as investing in skills, innovation and infrastructure to boost growth for the long-term.”

Despite the claims by Treasury that they have implemented measures to deal with the problems facing the economy, Rishi Sunak, Chancellor of the Exchequer, today said that “there is nothing he can do to control inflation.”

The statement by the chancellor and the continuing increase in prices will, economists believe, that retail recovery in April will be short-lived and that consumer confidence will remain low.

Thank you for taking the time to read this article, do remember to come back and check The Euro Weekly News website for all your up-to-date local and international news stories and remember, you can also follow us on Facebook and Instagram.