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UK retail sales unexpectedly fell in August on a supply chain disruption and a shift in consumer spending from supermarkets to pubs and restaurants as pandemic restrictions were relaxed.
The Bureau of National Statistics said retail sales fell 0.9% in August, after a steeper decline of 2.8% in July. While spending remains above pre-pandemic levels, the city’s economists had forecast a 0.5% increase.
According to the most recent snapshot, grocery sales fell 1.2% in the month after the impact of the relaxation of hospitality restrictions as people increased their spending on social activities such as eating and drinking in restaurants, pubs and bars.
However, sales fell in a variety of other categories, including a sharp drop in department stores as the disruption in supply chains weighed on retailers.
Britain’s largest retailers have warned that inventory levels are at their lowest since the 1980s as the economy is under increasing pressure from the labor and goods shortages due to the effects of Covid-19 and Brexit.
Analysts said the spending rush appeared to be easing after the lockdown, while wet weather kept shoppers off the main drag. In drug stores and toy stores, as well as in computer and sporting goods retailers, sales fell over the course of the month.
Aled Patchett, Head of Retail and Consumer Goods at Lloyds Bank, said, “Backlogged demand and lockdown savings could see sustained growth this summer, but these latest numbers suggest that supply chain issues and declining consumer demand are starting to take hold. â€
Retailers are entering the busiest time of year amid warnings that Black Friday and Christmas could be disrupted by inventory shortages.
“Many large retailers have already issued warnings about their ability to get the right products on store shelves as the UK’s Covid-fueled appetite for online fulfillment is tested in the run-up to Christmas when the current problems with hiring drivers don’t.” “” Patchett said.
According to the ONS, 6.5% of retail businesses were unable to get the materials, goods or services they needed in August. Department stores were hardest hit: 18.2% of those surveyed by state statisticians reported problems.
Given a sustained boom in internet spending since the pandemic began, the ONS said the share of online retail sales rose to 27.7% in August, up from 27.1% in the previous month. Online spending had been 19.7% in February 2020, just before the coronavirus outbreak.
Internet retail sales had risen sharply during the pandemic as banned consumers increased their spending on physical items – from TVs and computers to bikes, furniture, tools, and plants – while vacations and pub crawls were off the menu.
As the economy re-opened, a switch to more spending on services was expected, although analysts said the pace of decline raises questions about the strength of the UK’s economic recovery from the pandemic.
Revisions to numbers released in previous months showed retail sales declined in June and contracted in May, with the decline being the longest period of declining sales since 1996 records for four consecutive months.
Samuel Tombs, UK chief economist at consulting firm Pantheon Macroeconomics, said retail sales could come under further pressure as households’ disposable income plummeted in the coming months as inflation soared and the government cut universal credit services, the Complete vacation program and raise taxes through social security.
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“Accordingly, we continue to assume that household spending will take until the third quarter of 2022 to return to its pre-Covid peak,” he said.
Company leaders warned sales could remain under pressure in the coming months due to a dual threat of supply chain disruption and rising coronavirus infections. Mike Cherry, national chairman of the Federation of Small Businesses, said, “It feels like the sword of Damocles for many before a difficult winter.”
Regarding the announcement of an increase in social security contributions earlier this month, Cherry added, “The news that the government’s regressive employment tax will put 50,000 people out of work could not come at a worse time. Retail companies are nervous about their Christmas peak season as an opaque winter Covid plan likely includes trade restrictions in just a week.
