UK Retail Sales Show Decline in November Amid Cautious Consumer Spending
UK retail sales volumes fell by 0.1% in November on a seasonally adjusted basis, defying forecasts of a 0.4% increase. This decline was more pronounced when fuel sales were excluded and after accounting for pre-Christmas seasonality. The drop signals weakening momentum, despite positive retail volumes over the previous three-month period, largely supported by clothing and technology sectors.
November's Black Friday discounts did not significantly boost consumer spending, with supermarket sales declining for the fourth consecutive month. Household surveys indicated mixed intentions: while 31% of consumers planned to take advantage of Black Friday deals, nearly twice as many intended to reduce their shopping compared to the previous year.
Consumer confidence showed slight improvement. The GfK consumer confidence index nudged up to a joint-highest level this year, and December sentiment reached a 16-month high as households displayed greater optimism about their finances. Despite this, overall sentiment remained subdued. Analysts attributed part of the cautious consumer mood to ongoing political and media focus on income tax plans and public finances ahead of the 26 November Budget.
The Bank of England cut its policy rate to 3.75% following a decrease in inflation to 3.2% from 3.6%, aiming to enhance consumers' spending power as wage growth continues to outpace price increases. Deloitte suggested this rate cut could bolster shopper confidence and potentially trigger a pre-Christmas rebound in spending.
Economic concerns persist, with warnings of a possible recession as the UK faces two months of consecutive output contraction and a rising unemployment rate. Consumer spending, representing about 60% of the UK economy, remains critical to growth. Business surveys highlight firms' focus on value for money amid a discouraging spending environment, partly influenced by budget speculation. November borrowing totaled £11.7 billion, below forecasts and marking the lowest November borrowing in four years; however, total borrowing year-to-November reached £132.3 billion, £10 billion higher than the previous year.
Reactions to the Budget were mixed: James Murray affirmed commitments to debt reduction, while some critics called for caution to ensure borrowing slows to meet targets. Overall, retailers and analysts emphasize the challenging trading conditions ahead during the holiday season amid cautious consumer spending and economic uncertainties.
