July could be ‘lull before the storm’ for retailers and consumers

July could be the “lull before the storm” for retailers and consumers after the heatwave boosted sales of summer clothing, picnic treats and electric fans despite the intensifying cost of living crisis, experts have warned.

Figures from the British Retail Consortium (BRC) revealed a 2.3% sales rise last month compared with a 6.4% rise the year before.

The latest BRC-KPMG sales monitor found the sales growth was largely caused by inflation, which is at more than 9%, and masked a larger drop in the number of items sold.

Helen Dickinson, the chief executive of the BRC said the summer was “an incredibly difficult trading period”.

“Consumer confidence remains weak, and the rise in interest rates coupled with talk of recession will do little to improve the situation,” she said.

“The Bank of England now expects inflation to reach over 13% in October when energy bills rise again, further tightening the screws on struggling households. This means that both consumers and retailers are in for a rocky road throughout 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 worst-off parts of the country.

The Bank of England last week forecast inflation could exceed 13% by the end of the year – its highest since 1980 – plunging Britain into recession.

Spending on clothing and other non-essentials has held up so far this year as the warm weather and the opportunity to enjoy long-delayed overseas holidays and big family events, especially weddings, has been underpinned by savings made by many during the pandemic lockdowns.

However, Paul Martin, the UK head of retail at the advisory firm KPMG, said: “The summer could be the lull before the storm with conditions set to get tougher as consumers arrive back from summer breaks to holiday credit card bills, another energy price hike and rising interest rates. With stronger cost of living headwinds on the horizon, consumers will have to prioritise essentials, and discretionary product spending will come under pressure.

“Consumers are determined to enjoy delayed holidays and an unrestricted summer. Pent up demand, especially for new clothes, has so far been at significant enough levels to keep the overall retail sector in relatively good health.”

The trend for continued spending was reflected by users of Barclaycard, one of the UK’s biggest debit and credit card operators which recorded an increase in consumer spending on electronics (8.6%), clothing (4%), and pharmacy, health & beauty (3.1%) in July compared with June.

Hospitality and international travel had month-on-month declines, in one of the first signs that families were cutting back on social plans amid the higher cost of living. However, spending on both of those categories was more than twice that of last year.

Barclaycard said spending on essential items was up 7% in July compared with a year before, a step up from the 4% rise recorded in June, driven by fuel and supermarket shopping. Its card users spent 29.9% more on petrol and other fuels while utility bills climbed 43.9%.

The pinch on consumer finances caused by those higher bills is expected to pile further pressure on hospitality businesses, including restaurants and pubs, and others dealing in non-essentials.

Shoppers are already switching to discount stores, dropping brands in favour of supermarkets’ own-label goods and trimming spending on luxuries such as subscription services and gambling, according to data from the Nationwide building society.