Retail sales recovery hurt by weaker fuel demand as prices shoot up

September 22, 2023

The return of summer weather last month helped retail sales recover despite a hit from weaker demand for fuel, according to official figures.

The Office for National Statistics (ONS) reported a 0.4% rise - a figure that grew to 0.6% when the effects of fuel sales were excluded.

It said stronger clothing sales drove the increase but fuel sales volumes were 1.2% lower - likely the result of a surge in pump costs due to rising global oil prices.

The bounce-back for overall sales followed an upwardly revised 1.1% decline in July compared to the previous month when wet weather was blamed for people shying away from summer fashion purchases in physical stores.

ONS senior statistician Heather Bovill said: "Retail recovered a little from the large fall seen in July, driven by a partial bounce back in food and a strong month for clothing, though sales overall remain subdued.

"These were partially offset by internet sales, which dropped slightly as some people returned to shopping in person following a very wet July. Fuel sales also fell, with increased prices hitting demand."

Recent RAC data suggested that costs for both unleaded and diesel were up by more than 10p a litre since the beginning of August, reflecting the highest prices for Brent crude oil seen in 10 months.

Production cuts by Saudi Arabia and Russia have been blamed for the hikes, with pump prices likely to have further to go to reflect the current level for Brent.

The ONS data is keenly awaited as household spending accounts for a majority of the UK economy - currently flatlining.

A measure of activity covering manufacturing and services, though excluding retail, indicated a growing risk of recession ahead.

The S&P Global Purchasing Managers' Index (PMI) said its readings on activity during September - which are subject to revision when full data becomes available - pointed to a contraction in quarterly output of 0.4%.

The data was made available to the Bank of England ahead of its latest interest rate announcement on Thursday.

Its decision to maintain Bank rate at 5.25% was due to reductions in key inflation indicators but the nine-member monetary policy committee will have also been concerned by the recession risks flagged by firms taking part in the PMI survey.

That said, following 14 consecutive increases to tackle surging inflation, the rate-setting committee will be anxious to see if the pause in rate hikes heralds a pick-up in demand, such as in consumer spending.

A closely-watched indicator of activity, GfK's measure of consumer confidence, was revealed to have ticked up on Friday.

Its survey was taken ahead of the Bank's rate decision.

Any spending splurge ahead would be a concern for the rate-setters, as wage growth is currently outstripping the rate of inflation.

While the Bank's pause on rate hikes gives some security to borrowers that things like mortgage costs should not go up further for now, its governor signalled that it would have to act again if the pace of price rises accelerated.

Andrew Bailey was also clear that there was no prospect of a rate cut any time soon.

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