Slump in Retail Sales Tests Healey Ahead of Budget

Retail sales in Great Britain contracted at a sharper pace than forecasters anticipated in September, according to a data release from the Office for National Statistics that lands one week before the chancellor, John Healey, is due to present his budget. The figures showed the volume of goods sold falling 0.4% month on month, well beyond the 0.1% decline economists had collectively expected.

The timing places the ONS’s assessment squarely in the window in which fiscal decisions are being finalised. Weakening consumption data ahead of a budget tends to sharpen questions about how the Treasury will balance revenue-raising measures against support for households whose spending power is visibly eroding. The statistics office’s numbers arrive alongside separate findings that consumer confidence in the UK has fallen at the fastest rate since the Covid pandemic, a combination that economists read as a signal of mounting pressure on ordinary households and, by extension, on the government’s economic stewardship.

The detail behind the headline figure points to broad-based weakness. Non-store retailing, predominantly online sales, recorded the steepest drop of any part of the sector, falling 2.2% month on month. Textile, clothing and footwear stores saw volumes decline 0.9%. Household goods retailers lost 0.5%, and supermarkets dipped 0.4%, in part because unseasonably warm weather depressed sales of autumn and winter clothing ranges. Department stores were the only category apart from automotive fuel to post growth, with volumes up 0.2%.

Fuel presents a complicating picture for anyone reading the overall numbers. The volume of motor fuel sold rose 2.2% in September even as pump prices climbed to record highs, returning to levels last seen before the start of the conflict in the Middle East. In value terms, fuel sales jumped 6.1%, the largest month-on-month increase since the 10.9% recorded in March, the month immediately after the start of the US-Iran conflict. Strip out that fuel boost, and underlying retail sales slumped 0.7%, far worse than the 0.1% fall forecast in the City.

Analysts framed the data as a warning about the months ahead. Paul Dales, chief UK economist at Capital Economics, said October’s sharp fall in consumer confidence and September’s dip in retail sales volumes showed times were getting tougher for households just as the festive period, critical for retailers, approached. He said the figures supported his view that both real consumer spending and real GDP would grind to a halt in the fourth quarter of this year and the first quarter of next year, and that the fall in confidence was also the kind of development that makes the prime minister less likely to call an early election soon.

The ONS’s own statisticians urged caution over a single month’s reading. Hannah Finselbach, a senior statistician at the office, noted that retail sales grew in the latest quarter, with growth led by motor fuel, which despite recent price increases at the pump has returned to monthly sales levels last seen before the start of the Middle East conflict. Food and drink sales also contributed to quarterly growth, partly helped by the warm weather and the World Cup, although they fell back slightly in September.

Context matters for judging the severity of the decline. September’s fall followed a bumper August, with the ONS revising that month’s figures upward from a 0.5% monthly rise to 0.7%, helping quarterly sales increase 0.7% year on year. Even so, the combination of weaker volumes, collapsing confidence and record fuel prices presents the chancellor with an uncomfortable evidence base one week before he sets out fiscal policy, and it hands opposition critics and economic commentators fresh material for scrutinising whether the government’s economic approach is matching the conditions households actually face. Whether Healey’s budget answers that scrutiny may well define the government’s economic narrative into the new year.