Retail sales fell before the Iran war as consumer confidence weakens
Retailers took another hit last month, with sales falling even before the Iran war as households reined in their spending.
Sales volumes fell 0.4 per cent between January and February, according to figures from the Office for National Statistics (ONS), following two consecutive months of growth.
It comes ahead of an anticipated further decline in March as higher energy costs further squeeze household budgets.
Annual sales growth slowed to 2.5 per cent in February from 4.8 per cent in January, as supermarket sales slipped and wet weather affected the sale of household goods.
While sales in the three months to February rose by 0.7 per cent, they remain 0.3 per cent lower than their pre-pandemic level.
Another blow: Consumers were cautious with spending even before the Iran war
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Consumer confidence is already shaky, with GfK’s long-running consumer sentiment survey showing a ‘ripple of fear’ over the impact of the Iran war spreading.
The index dropped two points to minus 21 this month amid fears of price rises, while expectations for the economy over the next 12 months slumped six points to minus 37 – eight points worse than this time last year.
It means retail sales are likely to deteriorate in the coming months, with economists warning the setback is unlikely to be a blip.
‘Higher energy prices threaten to sap momentum by squeezing household budgets and undermining consumer confidence,’ said Martin Beck, chief economist at WPI Strategy.
‘Rising petrol prices will divert spending away from discretionary purchases, while renewed inflationary pressure will further erode real incomes and consumer sentiment is likely to suffer.’
Trading updates from retailers have been cautious about their outlook for the year, although many have said they had not seen an immediate impact.
However, yesterday Next warned that if the conflict persisted beyond three months, it would need to raise prices by between 4 and 10 per cent.
Next boss Lord Wolfson said he expects prices to begin to rise by between 1 and 2 per cent from June to help offset higher costs.
The retailer expects to take a £15million hit from higher fuel and air freight costs.
HMV managing director Phil Halliday said the crisis presented both a ‘sales problem and a cost problem,’ while H&M said the war could, if extended, result in ‘slightly additional cost pressure.’
Neil Birrell, chief investment officer at Premier Miton said: ‘The consumer has remained robust in the face of mounting pressures, but it’s highly questionable if that can continue in the current climate.’
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