Retail sales fall unexpectedly in Great Britain as cost of living crisis worsens

Data from the Office for National Statistics revealed that retail sales in Britain fell unexpectedly in February, raising concerns over plummeting confidence levels due to inflationary pressures.

The data released on Friday showed that whilst the amount of money spent by consumers was 0.7% higher than January, the quantity of goods purchased fell by 0.3%. This figure was lower than the 0.6% rise predicted by a group of economists polled by Reuters.

The ONS attributed some of the fall in sales to stormy weather, which are likely to have deterred consumers from physically visiting shops.

Another factor deemed responsible for the fall in retail sales was greater confidence in going out as Covid restrictions were eased. The fall in alcohol and tobacco sales were linked to greater confidence in visiting pubs and restaurants.

There was also a notable fall in online sales volumes in February, following strong growth in December and January. Though an increase in confidence may have prompted consumers to spend physically in shops rather than shop online, this fall in online sales is likely to be following a well-established seasonal trend - demand tends to rise during December and January due to Christmas purchases (and subsequent end-of-season sales) and falls in the following months.

However, the money spent by consumers increasing whilst the quantity of goods purchased falls is a reflection of a rise in the cost of living and it is likely that inflationary pressures are of prime importance in explaining the decline in sales.

Consumers are finding that their disposable incomes simply do not go as far as they used to due to prices increasing by 6.2% in the year to February - the fastest rise for 30 years. This rapid increase is due to a number of factors including, but not limited to, pressures from the conflict in Ukraine and the supply-side pressures triggered by the pandemic.

The Office for Budgetary Responsibility predicted this week that inflation could rise to nearly 9% in late 2022.

Inflation erodes both living standards and confidence. As prices rise, the purchasing power of disposable incomes declines (as long as wages are not rising in line with inflation) and households are forced to pare back expenditure on ‘luxuries’ and only continue to purchase necessities - including groceries. A consumer markets leader at PwC stated that ‘’Almost all of the slowdown in sales in February was accounted for by a decline in non-grocery sales’’.

An inability to purchase consumer wants (rather than purely needs) has contributed to the biggest fall in living standards since at least the 1950s.

Consumer confidence falls as individuals as they are worried about further price rises and potential job losses if their employers are unable to remain price competitive as cost pressures rise - this will have contributed to a fall in consumption as households adopt a cautious approach to spending.


Written by Deandra Peiris

Research compiled by Kristina Njeru


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