Clouds gather for retailers as Reeves warned not to hike taxes

British retailers closed out a strong summer with bumper sales growth in August, but head into the final quarter of the year facing waning consumer confidence. Warm weather helped drive clothing sales, while specialist shops like butchers and bakeries were also in high demand last month, official data shows.

The Office for National Statistics said on Friday retailers surpassed expectations for the month of August, with sales up 0.5 per cent after achieving the same in July and 0.9 per cent growth in June. However, on a three-month basis, sales volumes were down 0.1 per cent, which ONS senior statistician Hannah Finselbach attributed to ‘a poor period for non-food stores, such as antiques dealers and auction houses as well as tech stores, with fuel sales also falling’.

And separate data also released on Friday pointed to growing headwinds for the sector, which has struggled against soaring labour costs, high borrowing costs and dwindling consumer strength. Closely-watched figures from GfK show consumer confidence has fallen this month amid a sharp slide in expectations for the general economy. GfK’s Consumer Confidence Index dropped two points to -19 this month, while expectations for the general economy also fell two points to -32.

Britons’ expectations for their own personal finances over the next 12 months are more positive, adding seven points over the last year but falling one point in September to four. The Major Purchase Index, a measure of confidence in buying big ticket items, is also down three points to -16, but seven points higher than last September.

Neil Bellamy, consumer insights director at GfK, said: ‘The 7 August decrease in interest rates does not appear to have provided any obvious boost to the financial mood of consumers or drawn attention away from day-to-day cost issues. ‘With tax rises expected in the November Budget, the risk is that confidence inevitably falls, just like the autumn leaves.’ The retail sector has been slashing thousands of jobs in response to higher costs largely driven by Labour’s hikes to the national living wage and employer national insurance contributions.

Bosses, such as Next’s Lord Wolfson, have warned Rachel Reeves not to further burden the sector with higher taxes at her 26 November Budget. Martin Beck, chief economist at WPI Strategy, said: ‘Retailers can take heart from some positives. ‘Wage growth, though easing, is still historically strong and lifting household incomes. Past interest rate cuts are also helping to restore consumers’ purchasing power as well as reducing the incentive to save rather than spend.

‘Relatedly, households also retain sizeable savings buffers that could support discretionary spending if confidence were to pick up. ‘Still, looming tax rises in November’s Budget and shifting consumer preferences suggest a full-blown retail revival will be hard to sustain.’