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Retail sales rise to two-year high in August

British shoppers spent big on food, summer clothing and end-of-season offers last month, boosting high street retail sales to a two-year high in August.
Official measures of annual retail sales volumes rose by 2.5 per cent last month, higher than expectations of a rise of 1.5 per cent, and the best performance since July 2022.
Retail sales volumes are a key input in the economy’s growth performance, with the strong August performance likely to raise GDP estimates for the third quarter, which runs from July to September. Economic growth was flat at 0 per cent in July and is likely to show an expansion last month, economists said.
The Office for National Statistics (ONS) said consumers spent more on food, clothing, footwear and household goods last month, helped along by warm weather and discounting at the close of the summer season.
“Supermarkets in particular contributed to the largest annual rise for food sales since the summer of 2021,” Grant Fitzner, chief economist at the ONS, said. “Looking at the broader picture, retail sales have also increased across the three-month and annual period, following strong growth from online retailers. However, sales overall remain slightly below their pre-pandemic level.”
Food spending rose by 1.6 per cent over the year, boosted by another drop in food price inflation in August to 1.2 per cent and an overall 0.2 per cent decline in retail inflation. Supermarkets also enjoyed their best month since July 2021, the ONS said.
Consumer spending is on course to rise over the coming 12 months as households get a further boost from lower inflation and falling interest rates. The Bank of England held the base rate at 5 per cent on Thursday but is expected to carry out at least one more rate cut before the end of the year.
Overall household spending has not yet recovered to pre-pandemic levels, putting the UK behind other economies such as the US, where consumer expenditure has driven growth higher since 2022.
There is also concern that the government’s warnings about the need for “tough choices” on tax and spending is piling gloom onto households, after a measure of consumer confidence dropped sharply in September. GfK’s monthly measure of sentiment dropped to -20 this month, wiping out gains this year, after Labour ministers ramped up their warnings about the forthcoming budget.
Thomas Pugh, economist at RSM, said confidence levels were still “fragile”.
He added: “With savings rates still high, consumers will need to feel confident enough to start spending, rather than saving. Talk of a ‘painful’ budget clearly hasn’t helped.”
Ellie Henderson, an economist at Investec, said: “It is possible though that the Labour government has pushed the downbeat narrative over the ‘dire state of the public finances’ a touch too far, with consumers and businesses becoming more fearful of the future, to the detriment of the health of the economy.”

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