UK retail sales and consumer confidence fall

Britons cut back on their shopping in February and consumer confidence levels tumbled this month as accelerating inflation cast a shadow over the world’s fifth-biggest economy, data released on Friday showed.

Retail sales volumes unexpectedly fell by 0.3 per cent in February from January. Economists polled by Reuters had on average forecast a 0.6 per cent monthly rise.

Excluding automotive fuel, which rose in price in February as tensions between Russia and Ukraine escalated, sales volumes fell by a sharper 0.7 per cent.

Some of the fall was linked by the Office for National Statistics to stormy weather which kept some shoppers at home while the fading of the Omicron COVID-19 meant people returned to pubs and restaurants at expense of grocery retailers.

But rising prices meant the amount of money spent on food shopping rose, even as volumes fell.

Analysts said the data - combined with a drop in polling firm GfK’s measure of consumer confidence in March to levels last seen in November 2020 - was a taste of things to come as inflation climbs higher.

GfK’s gauge of personal finances for the coming year slumped to a joint record low, matched only by the reading in July 2008 when the global financial crisis was reaching a climax.

Inflation hit a 30-year high of 6.2 per cent in February and the government’s budget watchdog this week forecast it will go close to 9 per cent in late 2022, contributing to the biggest fall in living standards since at least the 1950s.

“Against that backdrop, it seems all but inevitable that households will continue to pare back spending in the coming month,” Bethany Beckett, an economist with Capital Economics, said.

Finance minister Rishi Sunak announced tax cuts this week that he said would help to ease the squeeze on households, but analysts said his plan did little to help those on lowest incomes.

There were some bright spots for retailers.

The easing of the coronavirus crisis, and the subsequent increase in people socialising and returning to workplaces, led to a 13 per cent leap in clothing sales in February from January.

The share of online sales in value terms was its lowest since March 2020 at 27.8 per cent but overall sales were 3.7 per cent above their pre-coronavirus levels of February 2020.

Volumes of fuel bought surpassed their pre-pandemic levels for the first time, although the amount of money spent on fuel grew more quickly, reflecting the higher prices.

Compared with a year earlier, overall sales volumes were up by 7.0 per cent, short of the 7.8 per cent growth expected in the Reuters poll.

British car production last month was 41 per cent lower than a year earlier, reflecting ongoing disruption from chip shortages and Honda’s closure of a car plant in July, the Society of Motor Manufacturers and Traders (SMMT) said on Friday.

Some 61,657 cars were made in Britain in February, the lowest number for the time of year since February 2009 and down from 105,008 a 12 months earlier.

British car production in 2021 sank to the lowest since 1956, due to the growing impact of semiconductor shortages, and is half its level of five years ago.

“The sector entered 2022 hopeful for recovery, but that recovery has not yet begun, and urgent action is now needed to help mitigate spiralling energy costs and ensure the sector remains globally competitive,” SMMT chief executive Mike Hawes said.

Manufacturers were also affected by the conflict between Russia and UKraine, which were sources for electric wiring and for aluminium, palladium and nickel used in batteries, the SMMT said.

A quarter of cars produced in February were either hybrid or electric vehicles.

Britain’s government has said the sale of new petrol and diesel-powered cars and vans will be banned from 2030 as part of efforts to reduce greenhouse gas emissions.

Honda — which before the pandemic accounted for about 10 per cent of British car production — said last year that it was closing its plant in Swindon, southern England, due to falling demand for its cars across Europe. It said the move was not due to Brexit.

Meanwhile the UK’s top equity index slipped on Friday as easing oil prices and weak consumer confidence data took the shine off its third straight weekly gain amid worries about high inflation slowing economic growth.

UK’s oil & gas index slipped 0.6 per cent on weaker crude futures as countries in the European Union remained split on imposing an oil embargo on Russia.

Overall, the mood took a hit as data showed British consumer confidence sank to levels last seen in late 2020 this month and retail sales unexpectedly fell in February.

Discount retailer B&M European Value Retail fell nearly 3 per cent after Credit Suisse downgraded the stock to “neutral”, while the overall retail index edged 0.1 per cent higher.