Retailers endure August sales beat as confidence weakens ahead of Budget

British retailers posted a solid August for sales even as consumer confidence slipped, underscoring a divergence between steady demand and fragile sentiment as the autumn season approaches. The Office for National Statistics said retail sales rose 0.5% in August, following a 0.5% gain in July and a 0.9% increase in June. While the month reinforced a favorable summer for clothing, food and specialty shops, a three-month view shows volumes down 0.1%, indicating near-term pressure in parts of the sector.

The ONS attributed the slower three-month pace to softer performance in non-food stores—such as antiques dealers and auction houses—as well as weakness in technology outlets, with fuel sales also recording declines. Those pockets of weakness echo a broader pattern of higher operating costs and cautious consumer spending that has weighed on retailers in recent months.

Separately, data tracking consumer mood from GfK showed a deterioration in confidence in September, just as shoppers brace for the autumn quarter. The GfK Consumer Confidence Index fell to -19 this month, with expectations for the general economy dropping two points to -32. Britons’ expectations for their own finances over the next year improved marginally, but that was offset by a weaker outlook for big-ticket purchases. The Major Purchase Index slid three points to -16, though it remained seven points higher than last September.

Neil Bellamy, consumer insights director at GfK, said August’s fall in interest-rate expectations and the prospect of new taxes in the November Budget have not translated into a meaningful uplift in the mood of households. “The 7 August decrease in interest rates does not appear to have provided any obvious boost to the financial mood of consumers or drawn attention away from day-to-day cost issues,” he noted. “With tax rises expected in the November Budget, the risk is that confidence inevitably falls, just like the autumn leaves.”

The sector has already been grappling with higher costs tied to wage and payroll policy shifts, including the national living wage and employer National Insurance contributions. Retailers, including fashion and department-store groups, have warned that further tax burdens could erode margins and curb hiring as the year progresses. Executives, such as Next’s Lord Wolfson, have publicly urged the government not to add to the sector’s tax burden in the forthcoming Budget.

Economists also pointed to a more nuanced picture for household finances. Martin Beck, chief economist at WPI Strategy, said retailers can point to positives such as wage growth remaining above historical norms and ongoing savings buffers that may support discretionary spending if consumer confidence stabilizes. Yet he cautioned that “looming tax rises in November’s Budget and shifting consumer preferences” could make a sustained retail revival difficult to sustain.

Overall, the data suggest a mixed trajectory for the economy’s path through the golden quarter. While current sales momentum provides a cushion for retailers, the looming Budget perspective and persistent cost pressures pose a meaningful downside risk. As the sector manages through the autumn season, policy developments and confidence trends will be closely watched for signals about demand and hiring in the months ahead.