Retailers suffer disappointing January as consumers brace for further hike in household bills

Retailers have suffered a disappointing January as consumers kept a tight rein on spending ahead of another round of household price rises.

Total UK retail sales increased by 4.2% in January – less than half the 11.9% rise seen a year earlier and below the three-month average growth of 5.2%, according to the British Retail Consortium (BRC)-KPMG retail sales monitor.

And even the meagre rise in sales masked a significant drop in volumes, taking into account historically record levels of inflation.

Figures show own-brand ranges remain popular across food and non-food products, and big ticket items are also seeing customers trade down.

Sales of clothing continued to prop up the high street, with men’s clothes and shoes the strongest category in January, while energy efficient appliances remained a top purchase for consumers.

The figures come as households prepare for another round of energy and mortgage increases, while water bills in England and Wales will also rise by an average of 7.5% in April.

January blues

BRC chief executive Helen Dickinson said: “As Christmas cheer subsided, retailers felt the January blues as sales growth slowed.

“Many retailers discounted heavily to entice consumer spend, and while there were bargains to be had in the January sales, retailers continue to be hit by lower margins and falling volumes.

“The coming months will continue to be challenging for retailers and their customers. Consumer confidence remains stubbornly low and looming rises in household bills and mortgages mean discretionary spending will remain weak.”

Paul Martin, UK head of retail at KPMG, said: “As we head into a difficult time for consumers, the short-term outlook for the retail sector remains challenging.

“With the latest interest rate rise and utility price increases heading our way, shrinking household incomes means we will continue to see a shift in what consumers buy and where they buy from.”

Card spending

Meanwhile, data from Barclays shows consumer card spending grew 9.7% year on year in January as New Year sales, blockbuster film releases and a surge in holiday bookings led to strong performances across retail, entertainment, and travel.

However, the figure was inflated by last January’s ongoing Covid restrictions, which caused a drop in non-essential spending at the time.

Spending on utilities grew 44.7% – the highest rate of growth since Barclays began tracking this data in April last year.

Supermarkets saw slightly higher growth than in December, although this was primarily due to rising food prices as well as consumers cooking more from scratch instead of ordering fast food, and the travel sector enjoyed a 66.1% spending boost as holidaymakers booked getaways for the year ahead.

Despite the cost-of-living squeeze, the majority of consumers say they are confident in their household finances and ability to live within their means each month, at 63% and 70% respectively – the highest level since last July.

Concerned

However, the percentage who say they are concerned about rising household bills is unchanged at 92%.

Esme Harwood, director at Barclays, said: “January saw a number of categories bounce back from last year’s Plan B restrictions thanks to Brits booking holidays, taking trips to the cinema and snapping up bargains in the sales.

“However, while it’s encouraging that confidence in household finances saw a slight boost, it is clear that Brits will still need to find ways to manage their budgets over the coming months amid rising grocery price inflation and mounting utility bills.”