Supermarkets and petrol stations hardest hit as lacklustre pay growth and rising inflation dent spending power

High street sales slumped last month, pushing the UK retail sector to its lowest growth rate in four years for the three months to the end of September as the impact of rising inflation and sluggish wage growth dented consumer spending power.

Official figures showed the amount of goods bought by consumers fell 0.8% in September and set the UK on course for a period of slow growth in the run-up to Christmas.

With only a fortnight before the Bank of England considers raising interest rates for the first time in 10 years, analysts said there was a downbeat trend in retail sales after the rate of growth in the third quarter fell to its lowest since 2013.

Year-on-year sales volumes were up just 1.5% in the past three months, compared with about 4% annual growth between 2014 and 2016.

Andrew Sentance, a senior economic adviser to the consultancy PwC, said the slowdown could be blamed on an inflationary squeeze that has seen real wages fall for most of the year.

“Prices of goods bought in shops, at petrol stations and online in September were 3.3% up on a year ago, whereas only a year ago they were falling by 1%,” he said.

“This surge in inflation, which mainly reflects the fall in sterling since the European Union referendum vote, is squeezing consumers and holding back the growth of retail spending in volume terms.”

Supermarkets and food retailers, department stores and petrol stations were hardest hit. Clothes shops, by contrast, generated 7% sales growth with their autumn collections.

Sales of computer games, mobile phones and laptops also suffered, leading analysts to speculate that consumers were pausing their spending ahead of the Black Friday discounting period in November and Christmas. A delay in the launch of the iPhone 8 may also have hurt smartphone sales.

Bank of England officials are expected to brush aside the weaker sales figures when they consider raising interest rates at their next meeting on 2 November.

Signals from a majority of members of the monetary policy committee in recent months have indicated that the central bank will reverse the 0.25% cut made in August last year after the Brexit vote.

With wages growth stuck at 2.2% and the consumer prices index measure of inflation at 3%, high street spending is likely to remain lacklustre for the rest of the year.

Laith Khalaf, a senior analyst at the stockbroker Hargreaves Lansdown, said: “The latest figures will give the Bank of England further food for thought when it comes to their impending decision on interest rates. Indeed, a nasty case of indigestion is probably warranted.

“The Bank doesn’t want to apply the brakes to consumer spending if it is slowing down of its own accord already, though it does want to curb inflation and the glut in consumer borrowing.”

Jeremy Cook, the chief economist at the money broker WorldFirst, said the September results raised uncomfortable questions about where UK growth will emerge from in the last three months of the year.

“Consumption is the engine of the UK economy and the retail sector which, hammered by a weak pound, tighter margins and customers beset by real wage declines, are in the eye of the storm,” he said.

“We will find out in the coming months whether this is consumers holding off on purchases in preparation for Christmas, or whether the Bank of England’s messaging on interest rate rises has been enough to keep some hands in pockets.

“We can but hope that this weakening sales pattern is also bringing about a slowing of the consumer credit expansion; retail sales in the past have been powered by a ‘buy-now-pay-later’ mentality and we continue to worry about a ‘buy-now-default-later’ reality.”

The value of sales dropped by 0.5% month on month, reflecting the fact that consumers had to spend more to buy the same quantity of goods.

Almost all of the 1.2% growth over the past year has come from improving online sales as consumer seek bargains away from the high street.

Ian Geddes, the head of retail at the consultancy Deloitte, said: “Online sales values have increased by 14% year on year. It now accounts for 17% of all retail spending, with consumers spending £1.2bn a week.

“Recent company results have shown that online marketplaces have performed particularly well. We expect they are likely to continue to see sales growth in the coming months.

“Consumers like the convenience of being able to shop for big-name brands and niche labels all from the same online portal, as evident by the 40% growth in online sales of clothing and footwear this month.”

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