Data from the British Retail Consortium (BRC) revealed a 0.5% year-on-year increase in total UK retail sales for July, marking a recovery from June’s disappointing performance. Cooler weather in June had kept consumers away from high street spending, but the arrival of warmer weather in July spurred purchases in specific categories.
Consumers were particularly inclined to purchase summer clothing and health and beauty products, as they prepared for outings and holidays. Despite this uptick, spending on furniture and household appliances saw a decline, with financially stretched consumers prioritising essentials over big-ticket items. While the overall sales growth is encouraging, it does highlight the selective nature of current consumer expenditure.
The Bank of England’s recent decision to cut interest rates for the first time since the COVID-19 pandemic followed a sharp drop in inflation to the 2% target in May and June. Despite this adjustment, prices remain significantly higher than four years ago, affecting consumer spending behaviour. Linda Ellett, UK head of consumer, retail and leisure at KPMG, commented, “Spending levels continue to be governed by whether households have been able to absorb the likes of mortgage and rent increases, or had to limit their spend elsewhere as a consequence. While summer staples, such as health, beauty, and gardening products have helped to drive retail sales growth both online and in-store in July, the upturn is likely much less than retailers were hoping for at this key time of the year.”
Supplementary data from Barclays indicated a 0.3% year-on-year decline in overall consumer card spending for July, reflecting selective discretionary spending amid higher living costs. Barclays, which processes nearly 40% of the UK’s credit and debit card transactions, also noted increased spending on health and beauty products, driven by the warmer weather and delayed summer sales. However, non-essential spending fell by 1.1%, with notable reductions in purchases of clothing, home improvements, and sports equipment.
Meanwhile, the consumer behaviour in pubs and bars significantly shifted due to external events. The surge in spending in these establishments can be attributed to football fans gathering to watch England’s progress in the men’s Euro 2024 tournament. Despite England’s loss to Spain, payments in pubs and bars almost tripled on 14 July, marking a 195.6% increase year-on-year. This made it the busiest Sunday for pubs in 2024 so far, with transaction volumes up by 92.9% compared to the average Sunday.
In the broader service sector, the S&P Global UK services purchasing managers index (PMI) showed a rise in demand in July, reaching the fastest pace since May 2023. The PMI increased to 52.5 in July from 52.1 in June, where any reading above 50.0 signals growth in private sector activity. Joe Hayes, principal economist at S&P Global Market Intelligence, remarked, “With the general election period coming to an end at the start of July, survey data for last month showed the UK service sector enjoyed a modest rebound after a fairly subdued end to the second quarter. July’s accelerated expansion in sales activity crucially suggests business and consumer confidence has improved, and albeit only one month into the second half of 2024, the latest survey results bode well for a reasonable GDP growth in the third quarter.”
In summary, while the return of warmer weather in July provided a boost to UK retail sales, the growth was primarily driven by selective spending on summer-related items, with big-ticket purchases continuing to lag. The broader economic indicators, including the recent interest rate cut and the improved PMI, suggest a nuanced recovery, reflecting both opportunities and challenges for the UK economy in the months ahead.
