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Income squeeze hits household spending in March

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22/04/2022
Retail sales in March fell by 1.4% as a combination of rising food and petrol prices saw household spending curbed in the month.

The largest contribution to March’s 1.4% fall came from non-store retailing, with volumes falling 7.9% over the month, according to the Office for National Statistics (ONS).

While this fall follows February’s revised 0.5% decrease, the ONS noted that sales volumes were still 20.3% above their pre-coronavirus February 2020 levels.

Spending in food stores fell in the month which the ONS attributed to higher spend in pubs and restaurants in line with the easing of coronavirus restrictions. It also said the impact of rising food prices on the cost of living are possible factors for the reduced spending on groceries.

Given the record high petrol and diesel prices, the data also suggests Brits are scaling back non-essential road travel, as automotive fuel sales fell 3.8% in March.

Growth was also reported in DIY stores and second-hand goods stores, while department store spending and clothing store sales fell in the month.

The proportion of online sales fell to 26% from 27.5% in February 2022.

“This is a continuation of a broad falling trend since its peak in February 2021 (37.1%)”, the ONS noted, but added that it is still above the 19.6% recorded in February 2020 before the coronavirus  pandemic.

‘People thinking twice about major purchases’

Bethany Beckett, UK economist at Capital Economics, said the fall in retail sales volumes adds to growing signs that the squeeze on real incomes is hitting household spending.

“With CPI inflation already at a 30-year high of 7% and set to keep rising, there’s a real risk of an outright fall in consumer spending in the coming quarters.

“The sharp decline in sales in March suggests that households are already paring back spending to cope with higher costs for food and fuel. That is only likely to worsen in the coming months as the cost-of-living crisis intensifies. After all, the March data predated April’s huge 54% rise in utility bills which will have hit household budgets hard,” she said.

Helen Dickinson, chief executive of the British Retail Consortium, said: “March sales were impacted by rising concerns around inflation as consumer confidence tumbled. The cost-of-living squeeze has many consumers thinking twice about major purchases, while their expectations of future financial situation plummeted to lows not seen since the financial crisis.

“Consumers face even more challenges as the energy price cap rose to a record high this month. Internet sales dropped to their lowest proportion of total retail sales since the start of the pandemic as shoppers gradually returned to physical retail destinations.

“Retailers are themselves squeezed between rising costs of operations, exacerbated by the situation in Ukraine, and weaker demand from customers. Higher global commodity prices, rising energy and transport costs, and a tight labour market, are all taking their toll. As a result, it is likely that retail prices will continue to rise over the course of 2022.”

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