Rising UK food sales driven by inflation not demand: BRC
Rate setters at the Bank of England are divided on how best to tackle inflation that is proving more stubborn than some economists predicted
[LONDON] A rise in UK retail sales in July was driven by an uptick in inflation rather than demand, according to the British Retail Consortium (BRC), as shoppers battled higher prices, especially for food.
Total UK retail sales rose 2.5 per cent last month compared with a year ago, the BRC said in a report on Tuesday (Aug 12) with consultancy KPMG. The primary driver was a 3.9 per cent rise in food sales, fuelled by warm weather and a packed sporting schedule, including Wimbledon and the England women’s football team winning the Euros.
Still, the boost was largely due to grocery inflation, which reached the highest in about 18 months in July as retailers raised prices to pass on higher costs. The effect showed up in a gauge of shopper confidence, which fell to zero for the first time since April, according to the statement.
Retailers are feeling the strain from the UK government’s revenue-raising budget, including an increase to employers’ national insurance contributions.
Meanwhile, rate setters at the Bank of England are divided on how best to tackle inflation that is proving more stubborn than some economists predicted. The central bank said when it cut rates by a quarter-point last week that tax rises were fuelling inflation and unemployment.
“With sales growth at these levels, it is barely touching the sides of covering the £7 billion (S$12 billion) new costs imposed on retailers at the last budget,” said BRC chief executive Helen Dickinson. Any further levies put on retailers, Chancellor of the Exchequer Rachel Reeves is under pressure to find revenue in her next budget in the fall, risk pushing up prices, she said.
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“This means more families struggling, particularly those on lower incomes, reduced consumer spending and a drag on economic growth,” she said.
The BRC warned that rising sales are not enough to fend off job losses and store closures across UK high streets. Retailers, including budget chain Poundland and fashion brand River Island, are expected to close stores this year.
Fashion sales grew early in the month but weakened due to the weather, while homeware and indoor furniture continued a steady recovery from last year’s decline, the BRC said.
A separate Barclays report showed consumer card spending rose 1.4 per cent in July compared with a year earlier, following a 0.1 per cent drop in June. Confidence in the UK economy dipped to the lowest since January, according to the bank’s report. BLOOMBERG
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