Shopping basket in supermarket

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Growth has lagged behind inflation because of wet weather and shoppers cutting back

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Mother’s Day boosted UK retail sales growth in March, but wet weather and consumers cutting back meant overall growth lagged well behind inflation.

The BRC-KPMG Retail Sales Monitor for the five weeks to 1 April saw UK total retail sales increase by 5.1%, up from an increase of 3.1% in March 2022.

This is above the three-month average growth of 4.8% and the 12-month average growth of 2.6%.

However, given the double-digit rate of inflation it represents a significant drop in sales volumes.

UK Like-for-like retail sales increased 4.9% in March, which was above the three-month average growth of 4.6% and the 12-month average growth of 2.1%.

Food sales were up 8.5% on both a total and Like-for-like basis over the three months to March, above the 12-month Total average growth of 5.8%.

Non-food sales increased just 1.8% on a total basis and 1.4% on a like-for-like basis over the three-months to March, albeit this is above the 12-month total average decline of 0.1%.

The proportion of non-food items bought online decreased to 38.4% in March from 40.7% in March 2022 as shoppers returned to instore purchasing.

BRC CEO Helen Dickinson commented: “While the wettest March in over forty years dampened sales growth for fashion, gardening and DIY products, Mother’s Day brightened up sales for the month. Stores were given an extra boost, as last-minute shoppers dashed to their local high streets and shopping centres to purchase jewellery, fragrances and flowers.”

“With consumer confidence edging up and big events on the horizon such as the King’s Coronation, retailers have reason for a spring in their step. However, extensive cost pressures on business remain, and Government must ensure it minimises incoming regulatory burdens. Unless these future costs are brought to a heel, we will likely see high inflation continue for UK consumers who already face rising household bills from this month.”

KPMG’s head of retail Paul Martin added: “Many retailers hoping for a Mother’s Day boost will have been disappointed with overall sales growth of just 5% in March, against a backdrop of rising inflation running at more than 10%.

“High street retailers saw some limited growth across most categories in March, but as consumers cut back on eating out, spending on home comforts, accessories and furniture saw the biggest growth with people looking to entertain at home instead. Online retailers also benefited from the boost in sales of home items, but saw continued decline in sales across most other categories, particularly clothing.

“As we enter April, rising utility costs, council tax and mobile bills coupled with frozen personal tax rates and the withdrawal of energy bill support will see consumers having to further cut back on discretionary spending. Consumers will continue to take steps to reduce spend where they can - switching where they shop, what they buy, and spending on fewer items.

“The challenge for retailers right now is having to face into their own rising cost agenda, as the rise in minimum wage rates comes into effect and inflation continues to challenge margins, whilst ensuring affordability, choice and value for customers, which will be key to keeping the tills ringing.

“As the difficult economic conditions continue, retailers will be hoping that April prompts consumers to look for some comfort in Easter treats and the sun starts to shine forcing replenishment of summer wardrobes.”

Commenting on food and drink sector performance IGD CEO Susan Barratt said: “UK food and drink sales in March followed a similar pattern as previous months, with volume sales continuing to be negative and value sales positive. As such, inflation continues to loom heavily over shoppers. Retailers are striving to deliver value with loyalty schemes, quality private label products and meal solutions that enable consumers to recreate restaurant experiences at home.

“Customer sentiment is stabilising, with our Shopper Confidence Index remaining flat in March. Coupled with our prediction that food price inflation will decline from 18% to 8% by the end of the year, shoppers are becoming less fearful. Fewer now expect food prices to get much more expensive in the year ahead (33% compared to 53% in August ’22) and fewer plan to cut back their spend across a range of activities including on food and groceries and eating out.”

Morning update

Consumer card spending grew just 4% year-on-year in March, less than half the latest CPIH inflation rate of 9.2%, consumers made further cutbacks to cope with the cost-of-living crunch.

The latest consumer data from Barclaycard showed spending on groceries increased 7.1%, well below the latest ONS food price inflation rate (18.2%), as 88% of shoppers say they are concerned about the impact of rising food prices on their household finances, and more than six in 10 (62%) are finding ways to reduce the cost of their weekly shop.

Over half (53%) of these value-seeking consumers are cutting down on luxuries or one-off treats for themselves, while a sizeable proportion are planning meals in advance to avoid wasting food, or using vouchers to get money off their grocery bill (both 38%).

Despite rising inflation elsewhere, spend on fuel saw a steep decline of 6.7%, because fuel prices this year are much lower than they were in March 2022, towards the start of the Russian invasion of Ukraine.

Home improvement and DIY stores enjoyed a month-on-month rise of 4.3%, as more consumers started to spruce up their homes and gardens in preparation for the warmer months.

Meanwhile, the ‘other specialist retailers’ category (up 3.5%) had its strongest performance since April 2022, thanks to increased spending at florists and card shops for Mother’s Day. However, this year’s figures have been inflated because Mother’s Day fell in a different reporting period last year, so the growth is unlikely to carry over into next month.

Esme Harwood, Director at Barclays, said: “The below-inflation rise in grocery spending shows that Brits are still trying their hardest to shave money off their weekly shop, as energy bills continue to rise. Cutbacks are also impacting restaurants, with a number of cash-strapped consumers even avoiding social plans that involve meals out.

“Hospitality & leisure businesses will be hoping that the busy Bank Holiday period provides a boost to counteract consumers’ everyday cost-savings. While predictions for the Coronation weekend are lacklustre, the results from Mother’s Day are more encouraging, demonstrating that Brits are still taking advantage of one-off moments to go out and celebrate.”

Silvia Ardagna, Head of European Economics Research at Barclays, said: “Inflation remains stubbornly high, with food and beverage prices up notably in February, and driving the sharp acceleration in prices set by restaurants and hotels.

“In this light, it is not surprising that consumers are moderating spending in these categories. But, with the decline in energy prices, we also expect a fast deceleration in food prices, which should provide some support to households’ consumption, and allow the UK to experience just a mild recession in H1 23.”

On the markets this morning, the FTSE 100 has started the day up 0.4% to 7,775.4pts.

Risers include McBride, up 4.1% to 31.5p, THG, up 3.2% to 67.1p and Marks & Spencer, up 2.4% to 166.5p.

Fallers so far include FeverTree, down 1.2% to 1,282.9p, Haleon, down 1.1% to 346.8p and Finsbury Food Group, down 0.9% to 97.1p.

This week in the City

A quiet week after the Easter break is headlined by Tesco’s annual results on Thursday.

Little else is in the calendar, aside from Ahold Delhaize’s AGM tomorrow.