Concerns over an impending recession in the UK have intensified as consumer spending patterns indicate a cautious approach to purchases. With rising fuel bills and Christmas expenses looming, households tighten their belts, putting pressure on the retail industry.

The British Retail Consortium (BRC) and Barclays jointly released retail sales data for October, revealing a decline in sales when adjusted for inflation. This slowdown follows the Bank of England’s consecutive interest rate hikes to combat inflation, suggesting that efforts to curb price growth may have inadvertently dampened consumer confidence and spending habits.

Barclays data indicates that card spending growth has slowed considerably, lagging behind the Consumer Prices Index (CPI) inflation rate. Similarly, the BRC/KPMG retail sales monitor, while not adjusted for inflation, showed a modest 2.5% increase compared to October 2022.

These trends align with the latest S&P Global/Cips construction sector survey, which points to a sustained decline in housebuilding activities. The survey highlights a broader economic slowdown, with all three construction categories – infrastructure, commercial property, and housebuilding – falling below the 50 threshold that separates growth from decline. Housebuilding, in particular, registered the weakest score of 38.5.

Further evidence of consumer restraint emerged from car sales figures released by the Society of Motor Manufacturers and Traders (SMMT). While fleet sales experienced a significant year-on-year increase, sales to private buyers barely budged, indicating a reluctance to commit to substantial purchases.

BRC Chief Executive Helen Dickinson attributed the retail sales slowdown to rising mortgage and rental costs, which have eroded consumer confidence. She also pointed to the anticipation of Black Friday deals, leading to a postponement of Christmas spending. Additionally, the “lipstick effect” – a tendency to purchase affordable luxuries during challenging times – was evident in increased sales of beauty products.

Dickinson expressed concern over the proposed £470 million annual increase in business rates for retailers, which could further strain the industry and potentially lead to price hikes. She urged Chancellor Jeremy Hunt to freeze these rates in the upcoming autumn statement.

Paul Martin, UK Head of Retail at KPMG, echoed Dickinson’s sentiments, acknowledging the impact of inflation and rising interest rates on consumer spending. He noted that the strong demand that sustained some retailers over the past 18 months is gradually waning.

The Bank of England projects economic stagnation in the second half of 2023, with zero growth forecast for the third quarter and a meager 0.1% expansion in the final three months.

Barclays highlighted a new form of shrinkflation consumers observe, known as slack-filling. Seven out of ten shoppers reported noticing product packaging containing unnecessary space.

Esme Harwood, a Barclays director, noted that consumers are cutting back on non-essential items like clothing and restaurant meals, opting instead to save for Christmas and prepare for winter fuel expenses. Unseasonably warm weather also reduced spending on indoor activities like digital streaming services and takeaways. However, pubs, bars, and clubs experienced substantial growth due to England’s performance at the Rugby World Cup, while the travel sector benefited from increased holiday bookings.

In conclusion, the UK economy faces potential recessionary pressures as consumer spending weakens amidst rising living costs and the ongoing impact of interest rate hikes. Retailers are navigating a challenging environment, with the prospect of additional business rate increases further complicating their operations. The upcoming autumn statement will determine the government’s response to these economic pressures.