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UK retail sales were up 4.1% in August as consumer confidence improved amid lessening inflation.

The BRC-KPMG Retail Sales Monitor for August found that total retail sales were up 4.1% in August compared with growth of 1% a year ago.

August’s growth was above the three-month average growth of 3.6% and ahead of growth in July.

Food sales increased 8.2% on a total basis over the three months to August and above the 12-month average growth of 8%.

Non-food sales decreased by 0.2% over the three months to August, but were back in growth during the month.

Over the three months to August, in-store non-food sales increased 1.3%, while online decreased by 1.7%.

The proportion of non-food items bought online decreased to 34.1% in August from 34.7% in August 2022.

“Retail sales in August improved, particularly on July’s poor performance,” said BRC CEO Helen Dickinson. “Sale of non-food products had their best month since February, particularly for health and beauty products, as retailers continued to invest in new, exciting brands, and customers splurged on self-care.

“The sales figures reflected the improvement in consumer confidence in August, and retailers hope this general upwards trend will carry on. Not all areas benefited: clothing and footwear saw weaker growth as families held back spending on children’s uniforms and other back-to-school goods until the last minute.

“Easing inflation will certainly be welcomed by consumers, but as the rate of price rises falls, so will the extra spending needed by consumers. As a result, sales growth may fall in the coming months, even if volume growth does not. Furthermore, high interest rates and high winter energy bills will put pressure on many households to spend cautiously. Retailers are combatting this through a clear focus on great value for consumers, expanding budget ranges, and finding ways to cut costs where possible.”

Paul Martin, UK head of retail, KPMG said: “August saw a bounce back in retail sales growth to 4.1%, which will come as a relief for many retailers.

“Health, beauty and food and drink were the strongest performing categories both on the high street and online, as consumers made the most of brief spells of sunshine to enjoy the summer holidays. Internet retailers continue to struggle as online sales fell yet again in August, dropping by 3% year on year.

“As summer comes to an end, retailers will have their sights firmly set on the most crucial period of trading as consumers get ready for Christmas. Inflation levels are heading in the right direction, albeit much more slowly than hoped, and savvy shoppers will be Christmas bargain hunting much earlier this year, as price continues to drive decisions and consumers seek out good deals to stretch their budgets. With shoppers becoming more calculated and aware of what they are getting for their money than we have seen for a long time, retailers will have to fight harder for every sale.

“Having survived the pandemic and continuing to battle through the cost of living crisis, we are already starting to see the resilience of the sector begin to fade and high street casualties are starting to emerge. Maintaining consumer confidence as we head into the golden quarter will be absolutely vital for some in the sector, who will need a good Christmas in order to continue trading in 2024.”

IGD CEO Sarah Bradbury added: “Despite the disappointing summer weather, August saw food and drink sales recovering some momentum that was lost in July. The progress of the Lionesses in the World Cup brought cheer to consumers and an excuse for get-togethers around game times. However, inflation remains the dominant driver of headline growth in the sector and, although lower now than the peaks seen a few months ago, it remains high by historical standards.

“Shopper sentiment was more muted in August, matching the disappointing summer weather. IGD’s shopper confidence index declined marginally, following recent gains. Shoppers remain concerned about the relatively high food inflation. Fewer now believe food prices will get cheaper in the next year (8% vs 11% last month). Only 13% expect food prices to return to their 2021 level.”

Morning update

PZ Cussons has made an offer to acquire the minority-held shares of PZ Cussons Nigeria (PZCN).

Following this acquisition, the group intends to delist the business from the Nigerian stock exchange.

The beauty group said it believed the transaction would significantly simplify and strengthen its business in Nigeria, putting in place a sustainable structure and platform to maximise long-term growth and value.

The offer amounts to ₦21 per share to acquire the 26.7% of issued share capital held by minority shareholders, equivalent to total cash payable of £22.8m.

Funding for the transaction is expected to come from existing Naira cash balances.

“The group believes the offer to be attractive for the minority shareholders of PZCN, particularly given the recent macroeconomic developments and foreign exchange challenges,” PZ Cussons said.

“It is also confident that the offer is in the interests of group investors, as part of the focus to deliver against its strategy and create sustainable shareholder value.”

Elsewhere, packaging giant DS Smith has issued a brief trading statement for the period since 1 May ahead of its AGM today.

The group said overall trading had been in line with expectations, driven by continued resilient pricing and strong cost control measures, despite end markets remaining “challenging”.

Like-for-like performance in corrugated box volumes has improved since the start of the financial year, with clear signs of reduction in customer de-stocking, while remaining below the prior year figures.

Meanwhile, it issued an inaugural €1.5bn green bond in July, which has significantly extended its debt maturity profile at attractive terms.

Miles Roberts, group CEO, said: “While the economic environment in which we operate remains challenging we have started the financial year well. We continue to work closely with our customers, meeting their evolving needs and are pleased with their positive feedback and the progress we are making.

“This, together with our ongoing focus on cost and operational efficiencies and our robust and flexible supply chain, positions us well for the remainder of FY24 and beyond.”

Consumer card spending grew 2.8% year on year in August, noticeably lower than the latest CPIH inflation rate of 6.4% and July’s growth figure of 4%, as rainy weather cast a cloud on the high street.

New data from Barclaycard found that spending on essentials saw just 1.0% growth – the lowest uplift since April 2020 (–2.9%), largely due to a sharp decline in spend on fuel (down 20.1%).

Supermarkets and food and drink specialist stores also saw weaker spending growth (4.5% and 4.9% respectively) compared with July (5.2% and 6.2% respectively). This was impacted by the slower rate of food price inflation, as well as consumers continuing to find ways to get more value or to reduce the cost of their weekly shop.

The majority of these supermarket savers are buying budget or own-brand goods over branded items, as well as cutting down on luxuries or one-off treats for themselves (both 52%).

A quarter (26%) are only buying items that are discounted, and 12% are removing some items when they get to the checkout, to avoid going over budget.

Meanwhile, over half (52%) of consumers have noticed that some of the food and drink products they buy have been downgraded in terms of quality or the quantity of premium ingredients, yet still cost the same or more than they used to – otherwise known as “skimpflation”.

Within this group, the most frequently cited skimpflation examples include crisps (44%), sweets and chocolate (43%), and cakes and biscuits (36%). A fifth also feel takeaways (22%) and restaurant meals (20%) are decreasing in quality without a corresponding fall in price.

In addition, shrinkflation continues to be front of mind for the majority of shoppers (84%), with chocolate (54%), crisps (47%) and packs of biscuits (43%) remaining the top products identified as being affected by this ongoing trend.

While the wetter weather, combined with the slowing rate of inflation, meant spending on non-essential items saw less growth (3.7%) than July (5.6%), there were some bright spots across the retail, hospitality and leisure sectors.

Entertainment continued to perform well (12%), while spending at pharmacy, health and beauty stores held up at 5.2%, likely boosted by holidaymakers buying sun cream and other toiletries for trips away.

Nevertheless, it was another challenging month for clothing, which was down 0.7%, albeit a less significant drop than in July (–3.1%).

Abbas Khan, UK economist at Barclays, said: “Muted spending growth in August is in line with other data sources, such as soft PMIs and stalling consumer confidence, suggesting that the bite from monetary tightening is starting to be felt more acutely.

“However, with further moderation in inflation and strong wage growth set to support real household disposable incomes, we continue to think the economy will avoid a recession in the coming quarters, even if growth is only set to be sluggish.”

On the markets this morning, the FTSE 100 has dropped 0.7% to 7,402.8pts.

Risers include McBride, up 3.4% to 40p, AG Barr, up 2.7% to 495p and Bakkavor, up 2% to 100p.

Some notable retailers are amongst the fallers today, with B&M European Value Retail down 6.1% to 532.6p, Tesco down 2.8% to 256.4p, Ocado down 2.6% to 855.8p and Sainsbury’s losing 2.5% to 261.9p.

Yesterday in the City

The FTSE 100 opened the week down 0.2% to 7,452.8pts yesterday.

On a quiet day for market news, risers included Nichols, up 2% to 1040p, Hotel Chocolat, up 1.8% to 111p, Just Eat, up 1.3% to 1,120p, McBride, up 1% to 38.7p and Domino’s Pizza Group, up 1% to 396.4p.

The day’s fallers included Greencore, up 2.6% to 80.6p, PZ Cussons, up 2% to 157p, PayPoint, up 1.8% to 544p, Cranswick, up 1.4% to 3312p and Haleon, up 1.3% to 315.7p.