Recession ‘inevitable’ as shoppers cut back spending
There was a 0.1% fall in retail sales volumes in June, following a revised 0.8% decline in May.
While the Office for National Statistics (ONS) reported sales volumes were 2.2% above their pre-coronavirus levels (February 2020), they were down 5.8% over the past year.
Fuel sales fell 4.3% in June, down from 0.8% in May, while sales volumes were 7.6% below their pre-covid levels on account of record high petrol and diesel prices, according to retailers. Over the course of the month, average petrol prices rose 19p per litre – the largest monthly rise on record, while diesel prices jumped nearly 13p.
However, as motorists cut back on filling up their cars, the same wasn’t recorded with food sales. Here, volumes rose 3.1% with retailers confirming that the increased sales were because of the Queen’s Jubilee celebrations.
Meanwhile non-food stores sales volumes fell 0.7%, helped by a decline in clothing stores (-4.7%) and household goods stores such as furniture stores (-3.7%).
Elsewhere, the ONS noted the proportion of retail sales online fell to 25.3% in June which is the lowest proportion since March 2020 (22.8%) “continuing a broad downward trend since its peak in February 2021 (37.4%).
‘Recession feels inevitable’
According to economic consultancy, Capital Economics, given that some figures were boosted while others were dragged down, “the underlying trend is that the surge in prices is weighing on sales volumes”.
Paul Dales, chief UK economist at Capital Economics, said: “We think a recession is just around the corner.
“The 0.1% m/m fall in retail sales volumes in June wasn’t quite as bad as the consensus forecast of a 0.3% m/m decline. But household goods sales have now fallen three months in a row, by 6.8% in total and to 4.6% below their pre-pandemic level, and petrol prices rose to a record high of almost £2 per litre last month.
“It is this slow burn from higher prices that is behind the steady decline in retail sales volumes since the start of the year.”
However, he added: “Other areas of consumer spending probably haven’t been quite as weak. Some people will have used the extra-long Jubilee bank holiday weekend to spend more time in pubs and restaurants. Even so, we think that the surge in inflation will lead to a 3% fall in real household disposable incomes this year and another 2% decline next year. As a result, a recession now feels inevitable.”