Wash out: Summer rain dampens pace of inflation, yet food sales spike year-on-year

09 Aug 2023 --- UK food sales increased 8.4% on a total basis and 8.7% on a like-for-like basis over the three months to July, according to the latest figures from the British Retail Consortium (BRC). This is above the 12-month total average growth of 7.8%, the consortium reports, adding that for the month of July, food was in growth year-on-year.

The news comes amid rising interest rates, which is putting pressure on the UK economy.

“The slowing pace of retail price inflation fed through into slower sales this July,” says Helen Dickinson OBE, BRC chief executive. 

“Spending was further depressed by the damp weather, which did no favors to seasonal goods.”

While consumer confidence generally improves, it remains below longer-term levels, Dickinson asserts. 

“With last week’s rise in interest rates pushing mortgage rates up ever higher, the UK government must get a handle on the economy, offering a solution to languishing GDP growth in a way that supports households and businesses. Only by creating the economic conditions for future growth will we see a meaningful improvement in the outlook,” she notes. 

Meanwhile, UK total retail sales increased by 1.5% in July, compared to a 2.3% growth the prior year. This is below the three-month average growth of 3.5% and the 12-month average growth of 3.9%.

Conscious spending 
Paul Martin, UK head of retail at KPMG, says: “As the storm clouds came out, shoppers retreated, with like-for-like sales growth a dismal 1.5% up in July.”

“We are seeing a big rise in the number of promotions that retailers are putting in place to get shoppers through the door as they battle to keep market share. Price-conscious consumers are shopping more carefully, more aware of where bargains can be found and what they get for their money – which is biting hard into retail margins and profitability.”

Last week, the BoE raised its main interest rate to a 15-year high of 5.25%  as it battles the highest inflation of any major economy.He elaborates: “UK consumers have been hugely resilient throughout the cost-of-living crisis, but stubbornly high inflation coupled with rapidly rising interest rates will test their ability and willingness to keep spending for the rest of this year.”

“Both consumers and retailers are finding that they have to get used to doing more with less as conditions remain incredibly challenging.”

“Negative territory”
Food and drink sales continued to grow in July. However, the rate of growth was the lowest since January, adds Sarah Bradbury, CEO of IGD (Institute of Grocery Distribution), a UK-based charity. 

“Sales growth was driven by inflation as volumes remained in negative territory, partly due to the unseasonably wet weather, especially compared to last July’s heatwave.” 

“Although IGD’s Shopper Confidence Index increased for the fourth month running, confidence remains low. Shoppers are feeling less pessimistic about their personal finances, but they aren’t yet feeling optimistic; fewer people are experiencing rising energy bills and fewer shoppers expect to be financially worse off in the year ahead.”

“Furthermore, fewer shoppers are concerned about food price rises, with 68% expecting them to get more expensive in the next 12 months compared to 89% last July.”

UK battles highest inflation of any major economy
British food price inflation will likely fall to around 10% later this year but will need to drop further for overall consumer price inflation (CPI) to return to its 2% target, Bank of England (BoE) chief economist Huw Pill said earlier this week.

Food and drink price inflation has risen faster than most other items since Russia invaded Ukraine last year, hitting 19.2% in March, its highest since 1977. It was 17.3% in June, almost 10 percentage points above overall CPI.

“We expect food price inflation to fall back to around 10% by the end of this year and then further next year. That’s still not a very comfortable level,” Pill told an online event hosted by Citizens Advice, a UK-based charity.

“Certainly, for us, when we’re looking at trying to reduce the overall level of inflation down to our 2% target, having food price inflation running at 10% is not compatible with that on a lasting basis,” he explains.

Last week, the BoE raised its main interest rate to a 15-year high of 5.25%, its 14th consecutive rate rise as it battles the highest inflation of any major economy.

Pill’s food price inflation estimate aligns with a prediction from the central bank’s industry contacts which the BoE included in its quarterly forecasts last week. These showed CPI falling to 4.9% by the final three months of this year, with food price inflation accounting for more than a quarter of that.

Edited by Elizabeth Green