UK retail sales surprised overall in July, but consumer confidence is at a record low as the UK heads into recession under a new leader, data on Friday showed.
Volume sales rose 0.3 percent last month after slipping slightly in June, the Bureau for National Statistics said, while analysts agreed on a further decline.
Online purchases “have been boosted by a range of offers and promotions,” said Darren Morgan, ONS director of economic statistics.
“However, fuel sales fell, with some evidence suggesting that the very hot weather meant fewer people travelled.”
Morgan added that a further drop in sales of clothing and homewares suggests “consumers are cutting back due to increased prices and concerns about affordability and the cost of living.”
Separate data on Friday showed UK consumer confidence at a record low.
“With headline after headline revealing record inflation eroding household spending power, the strain on many people’s personal finances in the UK is alarming,” said Joe Staton, Client Strategy Director at GfK.
Its consumer confidence index fell three points to -44 in August, the lowest since records began in 1974.
The Bank of England expects the UK economy to slip into recession by the end of the year as consumers struggle with soaring energy and food prices.
UK inflation is above 10%, its highest level in 40 years, prompting sharp rate hikes by the BoE, which in turn weighs further on consumers.
– Rising interest payments –
The ONS added on Friday that interest payments on UK government debt rose more than 63 percent year-on-year to £5.8 billion ($7 billion) in July.
“Since mid-2021, the cost of servicing central government debt has increased significantly,” it said.
Sam Miley, senior economist at the Center for Economics and Business Research, said the rising interest payments reflected “the growing level of net government debt as well as the increasing inflationary environment.”
Foreign Secretary Liz Truss, the favorite to replace the under-fire Boris Johnson after he steps down as prime minister next month, has promised to cut taxes if she is elected to the top posts by members of the Conservative Party.
“The balance of risks to public finances has clearly shifted to the downside,” said Michal Stelmach, senior economist at KPMG UK, following Friday’s data.
“The cost-of-living crisis is likely to require further support for households, while a slowing economy will put pressure on revenues.”
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