Consumer resilience wanes ahead of golden quarter- October's retail round up

Headline inflation remained unchanged and above-target at 6.7% in September, driven by rising fuel prices and double-digit food inflation.'''

The Bank of England held the base rate at 5.25% on September 21, bringing relief after 14 consecutive increases and raising hopes for the end of the hiking cycle. However, the prospect of rate cuts is unlikely anytime soon, as high borrowing costs negatively impact households' desire and ability to spend over retail's peak season.''

Fig. 1: Consumer confidence fell in September but business confidence grew'

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Source: GfK, Lloyds'

This is reflected in consumer confidence falling nine points to -30 in October, the sharpest month-on-month decline since December 1994 ' erasing the steady recovery made over the summer months (GfK) (Fig. 1). Notably, the Major Purchase measure fell by 14 points to -34 , suggesting widespread reluctance to spend on big-ticket items over the golden quarter.'

On the other hand, business confidence increased by three points to 39% in September (Lloyds), the second highest level this year, with confidence in the retail sector up five points to 37%. This reflects falling input costs and seasonal optimism among businesses as they prepare for the busy festive trading period.'

Persistent cost-of-living pressures soften retail sales'

Retail sales increased 3.8% YoY in September (Retail Economics). After accounting for inflation, this points to a widening gap between sales values and volumes (Fig. 2).''

Fig. 2: Retail sales values and volumes continue to diverge'