Retail Sales Growth Remains Tepid as Middle East Conflict Dampens Consumer Confidence
Total retail sales in the United Kingdom increased by 3.6% year on year in March, according to the latest figures from the British Retail Consortium (BRC) and KPMG. This growth was primarily driven by a significant 6.8% surge in food sales, which received an artificial boost from the early Easter holiday period. However, underlying trends reveal a more cautious consumer landscape, with non-food sales described as "tepid" amid heightened uncertainty due to the ongoing Middle East conflict.
Non-Food Sales Struggle Amid Geopolitical Tensions
Sales of consumer goods other than food increased by just 0.9% year on year in March, falling below the 12-month average of 1.1%. This sluggish performance reflects increased consumer caution, with shoppers delaying major purchases and building up savings buffers in response to geopolitical instability. Online non-food sales grew by a mere 0.1%, well under the year's average of 1%, indicating a significant drop in digital consumer confidence.
Demand remained robust for specific categories such as computers, toys, and homeware. However, clothing and footwear continued to struggle, and travel-related goods sales were notably impacted by disruptions to international travel caused by Middle East uncertainty. Separate data from Barclays corroborates this trend, showing a 3.3% decline in travel spending in March, ending five consecutive years of growth as many consumers opted for staycations instead of overseas trips.
Inflation and Supply Chain Pressures Compound Challenges
Inflation played a key role in driving up overall retail sales figures, with rising costs across shipping, fertiliser, insurance, and commodities placing additional strain on retailers. BRC chief executive Helen Dickinson emphasised the damage already inflicted on supply chains and called for government action to curb inflation by delaying domestic policies that could further increase prices for consumers.
"Retailers hope that the Middle East ceasefire will bring lasting stability, but the outlook remains uncertain," Dickinson stated. "Rising costs are piling yet more pressure on to already stretched retailers."
Consumer Spending Patterns Show Mixed Signals
Barclays data reveals that consumer card spending increased by 0.9% year on year in March, down from 1% in February. Essential spending returned to growth for the first time since July last year, rising by 0.5% as fuel prices surged. In contrast, discretionary spending growth slowed to 1.1%, primarily due to the decline in travel, marking the first such slowdown since 2021.
Despite these challenges, a survey conducted by Opinium for Barclays found that overall consumer resilience remains strong. Some 71% of UK adults expressed confidence in their ability to live within their means each month. However, 14% reported delaying major purchases or financial decisions due to Middle East uncertainty, while an equal proportion were building up savings as a precaution against rising costs. Notably, 74% of respondents anticipate that ongoing tensions will continue to affect the cost of living throughout the remainder of the year.
Economic Outlook and Policy Implications
Jack Meaning, chief UK economist at Barclays, highlighted the broader economic implications of these trends. "Shoppers delaying major purchases and building up a savings buffer in response to the shock from the Middle East reinforces our view that activity will be muted in the coming months," he explained.
With an interest rate decision imminent, Meaning suggested that the Bank of England must carefully balance addressing inflation with avoiding undue pressure on consumers. "Our modelling suggests this balance is best struck by holding rates, containing the worst of inflation without unduly squeezing consumers," he concluded.
Linda Ellett, UK head of consumer, retail and leisure at KPMG, echoed these concerns, noting that non-food sales growth remains tepid, growing at under 1% so far this year. "Consumer spending caution is heightened by the current and potential impact of the Middle East conflict," she stated, underscoring the fragile state of retail recovery amidst ongoing global uncertainties.
