July retail sales were up 2.5% on a year ago but growth is “barely touching the sides” of covering the last budget’s £7 billion in new costs on the sector, bosses have warned.
The uptick in the UK’s total retail sales was against growth of 0.5% last July and the 12-month average growth of 1.9%, according to British Retail Consortium (BRC)-KPMG data.
Food sales increased by 3.9% on last July due to warm weather and a packed sporting schedule, although rising food inflation – now at 4%, according to latest BRC figures – meant increased spending was more a result of higher prices than improved demand.
Non-food sales increased by 1.4% against a decline of 1.8% last July, with figures showing fashion sold well early in the month but deteriorated as weather worsened, while homeware and indoor furniture sales grew steadily, recovering from the previous year’s decline.
BRC chief executive Helen Dickinson said: “With sales growth at these levels, it is barely touching the sides of covering the £7 billion new costs imposed on retailers at the last Budget.
“If the upcoming Autumn Budget sees more taxes levied on retailers’ shoulders, many will be forced to make difficult choices about the future of shops and jobs, and ongoing pressure would push prices higher.
“Ultimately, this means more families struggling, particularly those on lower incomes, reduced consumer spending and a drag on economic growth.”
Linda Ellett, UK head of consumer, retail and leisure markets at KPMG, said: “The UK’s fifth warmest July on Met Office record brought a boost to home appliance and food and drink sales. But rising inflation was also a driver of the latter and monthly non-food sales are only growing at around 1% on average at present.
“With employment costs having risen and inflation both a business and consumer side pressure, it remains a challenging trading environment for many retailers.”
Separate figures from Barclays show consumer card spending grew 1.4% year-on-year in July – up from a decline of 0.1% in June – with discretionary spending up 2.4% as changeable weather led shoppers to both sunny and rainy day activities and items.
Barclays also found clothing performing strongly, up 4.2%, while growth in online retail spending excluding groceries reached 4.9%, up from 2.4% in June, as shoppers made the most of discounted items and sales events including Prime Day.
Pharmacy, health and beauty performed strongly, up 9.8%, while continuing to benefit from the enduring post-Covid “lipstick effect” – where shoppers turn to small and affordable luxuries to boost their mood, Barclays said.
However, confidence in the strength of the UK economy dipped once again in July, falling three points month-on-month to 22%, the lowest level seen since January’s 21%.
Karen Johnson, head of retail at Barclays, said: “The summer sales, changeable weather and shoppers seeking the “feel-good factor” led to a strong July for retailers, particularly among beauty, clothing and furniture stores.
“While confidence in the UK economy remains subdued, prudent money management, supported by the growing popularity of AI tools to help with budgeting, is contributing to a continued resilience in personal and household finances.”
