UK retailers brace for tougher quarter as confidence fades and tax plans loom

LONDON — UK retailers posted a 0.5% month-on-month rise in August sales, the Office for National Statistics said Friday, beating expectations after a 0.5% gain in July and a 0.9% rise in June. On a three-month basis, volumes were down 0.1% as non-food stores, such as antiques dealers and auction houses, along with tech retailers, struggled, and fuel sales also fell, according to ONS senior statistician Hannah Finselbach.

Separately, data from GfK pointed to growing headwinds for the sector. The consumer confidence index fell to -19 this month, with expectations for the general economy down to -32. Britons’ expectations for their own finances over the next 12 months were more positive on balance, adding seven points over the last year but dipping one point in September to four. The Major Purchase Index, a measure of confidence in buying big-ticket items, slipped three points to -16, though it remained seven points higher than a year earlier.

Neil Bellamy, consumer insights director at GfK, said: "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."

The retail sector has faced headwinds from higher costs, driven largely by hikes to the national living wage and employer national insurance contributions. Bosses such as Next's Lord Wolfson have warned Reeves not to further burden the sector with higher taxes at her November Budget, a point echoed by industry economists. Martin Beck, chief economist at WPI Strategy, said retailers can take heart from some positives. Wage growth, though easing, is still historically strong and lifting household incomes. Past interest-rate cuts are also helping to restore purchasing power, and households retain sizeable savings buffers that could support discretionary spending if confidence improves. Still, looming tax rises in November's Budget and shifting consumer preferences suggest a full-blown retail revival will be hard to sustain.