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Interest rate fears dampen UK retail sales

THE value of UK retail sales in June was up only marginally on the same month of last year, industry figures have revealed, with consumer worries about the prospect of higher interest rates cited as a dampening factor.

DAMPENING: Retail sales for the month of June was only marginally up on the same time last year.
DAMPENING: Retail sales for the month of June was only marginally up on the same time last year.

Excluding distortions arising from the timing of Easter, the year-on-year growth in retail sales value last month was the weakest since May 2011.

The figures, published today by the British Retail Consortium (BRC), show continued weakness in food sales amid the continuing supermarket price war. While food sales have been consistently weak in recent times, England's early exit from the World Cup is flagged as a factor which compounded grocers' troubles in June.

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The total value of UK retail sales in June was up 0.6 per cent on the same month of 2013. This represents a sharp slowdown from respective year-on-year rates of increase of 5.7 per cent and two per cent in April and May.

Edinburgh-based David McCorquodale, head of accountancy firm and BRC survey sponsor KPMG's UK retail sector practice, said: "Concern over a potential rise in interest rates is having a dampening effect on retail sales. June saw the brakes applied to spending as shoppers put purchases of big ticket items on hold whilst they waited to see if the Bank of England would take action on interest rates.

"Even sales of home accessories and furniture flatlined, which is surprising given the UK is reportedly in the midst of a housing boom."

He added: "Sales in the food sector also struggled, with England's early exit from the World Cup exacerbating the grocers' problems. The price war continues to take a heavy toll on the profitability of the sector, which saw sales decline in value again this month."

Mr McCorquodale noted clothing retailers had fared better, with sunshine driving demand for summer clothes and shoes.

He said these steady sales had meant most fashion retailers had not resorted to the deep discounting seen in previous years. This, he observed, would help them hold on to their profit margins.

The BRC figures show the value of online sales of non-food products in June was up 10.6 per cent on the same month of last year.

BRC director general Helen Dickinson said: "Consumers continue to benefit from competitive pricing."

She added that, for retailers, it was a mixed picture, with food sales down and non-food sales up but at a slower rate than in May.

Analysing the figures, Ms ­Dickinson said: "Are consumers pausing for a breath after the recent rush for revamping their homes? Could it be that they are feeling a touch more confident and have bought into fashion at full price, which in turn has encouraged some retailers to delay their summer sales? In this case, retailers may find that their margins are less affected than figures would suggest.

"On the other hand, the total value of overall food sales is still in decline but the lower pricing policies we have witnessed are good news for consumers who are set to continue to benefit from keen bargains in their shopping baskets."

Looking ahead, Mr McCorquodale said: "Retailers have two months of tough comparables coming up after Murray mania, a heatwave and the arrival of the royal baby boosted sales last year."

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