July could be the “calm before the storm” for retailers and consumers after a heatwave boosted sales of summer clothing, picnic treats and electric fans despite a deepening cost-of-living crisis, experts have warned.
Figures from the British Retail Consortium (BRC) showed sales rose by 2.3% last month, compared with growth of 6.4% the previous year.
The latest BRC-KPMG sales monitor found that the rise in sales was largely driven by inflation, which was above 9%, and masked a larger decline in the number of items sold.
Helen Dickinson, chief executive of the BRC, said the summer was an “incredibly difficult trading period”.
“Consumer confidence remains weak and rising interest rates combined with talk of a recession will not do much to improve the situation,” she said.
“The Bank of England now expects inflation to reach above 13% in October when energy bills rise again, further tightening the screws on struggling households.” This means that consumers and retailers alike are in for a tough ride through the rest of 2022.”
Some experts expect rising inflation to lead to a recession that could last into next year and hit millions of the most vulnerable households, especially in the poorest parts of the country.
Last week, the Bank of England predicted that inflation could exceed 13% by the end of the year – its highest since 1980 – plunging Britain into recession.
Spending on clothing and other non-essential goods has held back so far this year as warm weather and the opportunity to enjoy long-delayed holidays abroad and large family events, especially weddings, have been boosted by savings made by many during pandemic lockdowns.
However, Paul Martin, head of UK retail at consultancy KPMG, said: “The summer could be the calm before the storm with conditions set to get tougher as consumers return from their summer break to holiday accounts for credit cards, other energy price hikes and interest rate hikes. With stronger cost-of-living headwinds on the horizon, consumers will need to prioritize essentials and discretionary spending on products will come under pressure.
“Consumers are determined to enjoy delayed vacations and an unlimited summer. Laid-back demand, particularly for new clothing, has so far been at significant enough levels to keep the entire retail sector in relatively good health.”
The continued spending trend was reflected by users of Barclaycard, one of the UK’s largest debit and credit card operators, which recorded increases in consumer spending on electronics (8.6%), clothing (4%) and pharmacy, health and beauty (3.1%) in July compared to June.
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Hospitality and international travel fell on a monthly basis, in one of the first signs that families are cutting back on their welfare plans amid higher living costs. However, spending in both categories more than doubled last year.
Barclaycard said spending on essential items rose 7% in July from a year earlier, a step up from the 4% rise recorded in June, driven by fuel and supermarket shopping. Users of its cards spent 29.9% more on petrol and other fuels, while utility bills rose by 43.9%.
The strain on consumer finances caused by these higher bills is expected to pile further pressure on the hospitality business, including restaurants and pubs, and others dealing in non-essential goods.
Shoppers are already moving to discount stores, ditching brands in favor of supermarket own-brand goods and cutting back on luxuries such as subscription services and gambling, according to data from the Nationwide building Society.
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