Hottest June on record gives stronger than expected uplift in retail sales

The latest ONS figures show retail sales volumes have increased by 0.7 percent in June 2023, driven by a rise in department stores (up 1.9 percent), household goods (up 1.4 percent) and food sales (up 0.7 percent).

However, clothing sales suffered from another decrease last month, down 0.4 percent.

Jacqui Baker, head of retail at RSM UK and chair of ICAEW’s Retail Group, comments: “The hottest June on record prompted consumers to hit the high street to make the most of the good weather and spend. This saw an increase in household goods as consumers stocked up on garden furniture and barbeques, boosting food sales. With retailers sitting on high levels of stock after a tough few months of trading, many have kickstarted their summer sale early this season, which will have attracted consumers on the hunt for a bargain. Despite this, retail prices excluding fuel fell by 0.1 percent this month, the first fall since January 2020.

Although energy costs are falling, inflation is easing and the increase in food prices is slowing, consumer confidence dropped for the first time this year. With another rate hike in June from the Bank of England, soaring mortgage costs and rents are still very much a dark cloud over consumers, which leaves retail spending in a sticky situation.

The increase in sales will be a welcome boost for retailers. But unfortunately, the positivity from last month could be short lived, as the bad weather coupled with rail strikes and lower consumer confidence could put a dampener on July’s results.”

Thomas Pugh, economist at RSM UK, added: “A strong performance in the retail sector in June underscores the resilience of the broader economy. Indeed, consumers seem willing to spend with price falls in most retail categories translating into high sales volumes.

We continue to think that the worst is behind retailers. However, trading will remain difficult for the rest of the year. Much of the increase in consumers’ real incomes from falling inflation will be eaten up by higher mortgage and rent payments. What’s more, consumer confidence fell sharply in July suggesting that the unrelenting headlines about mortgage rates are taking a toll on consumers, meaning many will choose to use any extra income to pay down debt rather than splurge on retail therapy.

Overall, we expect retail sales volumes to moderately tick up over the rest of the year, but a greater rebound will have to wait until the economy improves more broadly, which probably won’t be until the second half of 2024.”

Image courtesy of Unsplash. Photo credit: Maddi Bazzocco.