The late arrival of warm summer weather drove a recovery in retail sales last month, industry data shows, despite continuing signs of consumers holding back on big ticket purchases amid the cost of living crisis.
Figures from the British Retail Consortium showed that UK total retail sales increased by 0.5% year on year in July, a recovery from the washout month of June when colder weather deterred shoppers from spending on the high street.
Consumers bought summer clothes and health and beauty products, as households prepared for days out and holidays. However, there was weakness in spending elsewhere, as hard-pressed consumers cut back on furniture and household appliances.
The Bank of England cut interest rates last week for the first time since the Covid pandemic, after a sharp fall in inflation from the highest level in four decades back to its 2% target in May and June. However, prices are still rising and remain significantly higher than four years ago.
Linda Ellett, the UK head of consumer, retail and leisure at KPMG, said: “Spending levels continue to be governed by whether households have been able to absorb the likes of mortgage and rent increases, or had to limit their spend elsewhere as a consequence.
“While summer staples, such as health, beauty, and gardening products have helped to drive retail sales growth both online and in-store in July, the upturn is likely much less than retailers were hoping for at this key time of the year.”
Separate figures from Barclays show overall consumer card spending fell 0.3% year on year in July, as Britons’ discretionary spending remained selective amid the higher cost of living.
The figures from the bank, which processes almost 40% of UK credit and debit card transactions, also showed an increase in health and beauty spending as the arrival of warmer days and belated summer sales resulted in a modest retail recovery.
However, spending on non-essential items dropped by 1.1%, with a reduction in spending on clothing, home improvements and sports equipment.
Pubs and bars recorded an uplift in spending as football fans flocked to watch England progress to the final of the men’s Euro 2024 tournament.
Despite losing to Spain, Barclays said payments made in pubs and bars almost tripled year on year on 14 July, with an increase of 195.6%.
This also marked the busiest Sunday of the year for pubs, with transaction volumes up 92.9% compared with the average Sunday for the year so far.
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In a sign of strength for the service sector, figures from the monthly S&P Global UK services purchasing managers index (PMI) showed demand rose in July at the fastest pace since May 2023.
The survey of leading service sector companies, excluding retail, is closely monitored by the Bank and the Treasury for early warning signs from the British economy.
The PMI – where anything above 50.0 signals growth in private sector activity – rose to 52.5 in July from 52.1 in June.
Joe Hayes, principal economist at S&P Global Market Intelligence, said: “With the general election period coming to an end at the start of July, survey data for last month showed the UK service sector enjoyed a modest rebound after a fairly subdued end to the second quarter.
“July’s accelerated expansion in sales activity crucially suggests business and consumer confidence has improved, and albeit only one month into the second half of 2024, the latest survey results bode well for a reasonable GDP growth in the third quarter.”
