Top story

UK retail sales growth slowed in January despite easing inflation as continued weak consumer demand led to “lacklustre” sector performance.

Total retail sales increased by 1.2% year on year in January, against growth of 4.2% in January 2023, according to the January BRC-KPMG Retail Sales Monitor.

This was above the three-month average growth of 1.9%, but significantly below the 12-month average of 3.4%.

Food sales increased 6.3% year on year over the three months to January, against a growth of 8.0% in January 2023 and below the 12-month average of 8.1%.

Non-food sales decreased 1.8% year on year over the three-months to January, against a growth of 2.9% in January 2023. This is steeper than the 12-month average decline of 0.5%.

Over the three months to January, in-store non-food sales decreased 1.5% year on year, while online non-food sales decreased by 4.2% annually.

British Retail Consortium CEO Helen Dickinson commented: “Easing inflation and weak consumer demand led retail sales growth to slow. While the January sales helped to boost spending in the first two weeks, this did not sustain throughout the month. Larger purchases, such as furniture, household appliances, and electricals, remained weak as the higher cost of living continued into its third year. The milder temperatures meant clothing sales performed poorly, particularly winter clothing and footwear. It was better news for health and beauty products, which continued to sell extremely well.

“With the spring budget in sight, and a general election looming, government cannot afford to ignore the needs of retailers and their customers. Employing three million people and supporting families and communities in every corner of the country, retail is the ‘everywhere economy’. By addressing the cumulative burdens, from business rates rises to ill-conceived new recycling proposals to border control costs, the next government can unlock retail investment and boost local and national economic growth.”

Linda Ellett, UK head of consumer markets, leisure & retail, KPMG, said: “It may be a new year, but the hangover of low consumer confidence remains, with retail sales growing by a lacklustre 1.7% on the high street, and online operators seeing yet another month of negative sales performance.

“Health and beauty purchasing continued to drive sales both on the high street and online, whilst sun seekers and consumers with healthy resolutions front of mind gave a boost to sports and travel equipment sales, which were up over 4% year on year.

“The extraordinary weather conditions across large parts of the country did little to encourage shoppers out on to the high street, whilst continued industrial action on the rail network was unhelpful for city centre locations. Whilst there are some positive signs that mortgage rates are starting to fall and stabilise, and shop inflation has fallen to its lowest level in over a year, the feel-good factor has yet to materialise at the tills.

“It remains a difficult environment for retailers facing into significant downward pressures on demand, a strong promotional environment, and uncertainty hitting supply chains due to rising geopolitical tensions. Retailers will be hoping that continued good news on the economy, coupled with the small boost given to some consumers as cuts in national insurance start to feed through to pay packets, will boost confidence and convert to sales. With increases in labour costs and business rates around the corner, retailers will be hoping for good news in the chancellor’s upcoming budget to give consumers that lift they need to start spending again.”

Commenting on the food and drink sector performance, IGD CEO Sarah Bradbury added: “The year has started on a positive note. Despite most of the country facing arctic conditions in the early part of January, grocery volumes have seen their largest year-on-year growth in over 12 months. This should, however, be viewed in the context of the market having endured a prolonged period of significant volume declines. Grocery sales remain in year-on-year growth, and with inflation slowing and further price cuts across the market, the rate of growth has remained relatively stable for the past three months.

“We can see households have had to be mindful with their spending in January. Nearly a third of households with children at home claimed to have bought on credit over Christmas, so some households – particularly less affluent ones – will likely cut back a little to pay off this festive spending. While wage growth is now ahead of inflation, it will be some time before real incomes recover to their pre-crisis levels and consumer spending fully recovers.”

Morning update

Consumer card spending grew 3.1% year on year in January – remaining below the wider inflation rate of 4.2%, yet higher than December’s growth of 2.3%, according to data from Barclaycard,

Barclaycard found that retail, hospitality and leisure spending slowed as consumers stayed at home to shelter from the cold weather and save money after a busy festive period.

However, pointing to improving optimism, consumers’ confidence in both their household finances and ability to spend within their means reached its highest point in over two years.

Spending on essential items increased 4.2% – noticeably higher than in December (1.8%). This was largely driven by a recovery in fuel spending, in light of the new energy price cap coming into effect 1 January, which saw a smaller decline (–9.7%) compared to December (–12.5%).

Growth in supermarket spending increased to 5.2% – up from 2.8% in December – on par with the growth seen in October (5.2%) and November last year (5.0%), as UK consumers returned to their regular routines after the Christmas break.

As concerns around rising food prices remains high (87%), two-thirds (67%) are continuing to look for ways to reduce the cost of, or get more value from, their weekly shop.

Of these consumers, half (47%) are using loyalty schemes or vouchers to get money off shopping. Two in five (39%) are shopping at multiple supermarkets to source a range of deals, while a similar proportion are buying discounted products nearing expiration or ‘yellow sticker’ items (38%).

In addition, almost a fifth are cutting back on buying meat, fish or other animal products as well as alcohol (both 18%), while 16% have been buying discounted festive food to save money.

Supermarket savings are also expected to impact Valentine’s Day celebrations, with half of those intending to buy flowers this year saying they will save money by buying them from the supermarket instead of a florist.

Other cost-saving strategies include spending the evening at home instead of going out (21%), setting a spending limit for gifts (18%), and forgoing presents altogether (16%).

Spending on non-essential items increased 2.6% in January – consistent with the growth seen in December and November last year, at 2.5% and 2.7% respectively.

This comes as over two-fifths (43%) of consumers say they are planning to cut down on discretionary spending due to rising household bills, with many tightening their belts after the festive season.

Spending on takeaways and fast food was up 5.5% year on year in January, with those that spent money on food to go forking out £55 on average each.

This shift in behaviour, as well as the popularity of Dry January, meant that bars, pubs and clubs saw a smaller uplift (6.5%) than in December (7.9%), while restaurants faced a steeper month-on-month decline (–11.6% vs –8.8%).

Of those planning to limit discretionary spending throughout the winter, three in five (59%) said they will be cutting back on eating out at restaurants.

Karen Johnson, head of retail at Barclays, said: “After a December filled with festive indulgence, consumers took on a more frugal approach in January, choosing to stay at home more often to save money and shelter from the winter weather.

“This meant online retail performed strongly as shoppers browsed the sales from the comfort of their sofas, while demand for digital content and takeaways remained robust, boosted by the release of popular new film and TV releases such as The Traitors and Fool Me Once.

“While this shift in behaviour resulted in subdued growth for hospitality and leisure, it’s encouraging that confidence is improving, with consumers remaining resilient and finding savvy ways to manage their finances.”

Jack Meaning, chief UK economist at Barclays, said: “Increasing consumer confidence is a positive message for the UK outlook in 2024, as we see inflation continue to fall, real incomes rising and growing signs that interest rate cuts are coming. Spending looks to be on an upward trajectory, set to increase more than inflation in the coming months, which will be an important milestone for consumers and businesses who were squeezed throughout 2023.”

Elsewhere this morning, British American Tobacco has announced two non-exec directors will step down from the board in April.

Sue Farr and Dimitri Panayotopoulos will leave at the conclusion of the company’s AGM on 24 April 2024, having served on the board for nine years.

As a result of these departures, the company announced changes to the role of senior independent director and to the composition of the audit and remuneration committees.

Holly Keller Koeppel will be appointed as senior independent director, succeeding Sue Farr. She has been a non-exec director since July 2017 and is currently chair of the audit committee.

Darrell Thomas will be appointed as chair of the audit committee.

Kandy Anand will be appointed as chair of the remuneration committee, succeeding Dimitri Panayotopoulos.

Luc Jobin, chairman of the board, said: “I would like to thank both Sue and Dimitri for their extensive contribution to the board over their tenures. I would also like to thank Holly for chairing the audit committee since 2019. I look forward to welcoming Holly, Darrell and Kandy to their new roles.”

Supermarket Income REIT, the supermarket real estate investment specialist, has announced ratings agency Fitch Ratings has reaffirmed its investment grade BBB+ debt rating with a stable outlook.

On the markets this morning, the FTSE 100 is up 0.7% at 7,667.2pts.

Early risers include Bakkavor, up 3.3% to 96.7p, Nichols, up 3% to 1,034.9p and Kerry Group, up 2.1% to €80.54.

Fallers include Naked Wines, down 2.9% to 63.1p, AG Barr, down 0.9% to 546p and Coca-Cola HBC, down 0.9% to 2,305p.

Yesterday in the City

The FTSE 100 started the week broadly flat at 7,612.9pts.

Yesterday’s fallers included Virgin Wines, down 9% to 34.6p, Nichols, down 4.3% to 1,005p, McBride, down 3.9% to 69p, AG Barr, down 3.5% to 551p, PZ Cussons, down 3.3% to 125p, THG, down 2.4% to 63.1p and Domino’s Pizza Group, down 2.1% to 339.4p.

Risers on the day included Wynnstay, up 8% to 405p, Ocado, up 3.6% to 524p, Naked Wines, up 2.5% to 65p, Pets at Home, up 2.5% to 276p, Deliveroo, up 1.9% to 119.2p and Diageo, up 1.6% to 2,984p.