Rainy season drags down consumption, UK retail sales unexpectedly drop by 1.2% in July.

The UK's Office for National Statistics (ONS) announced on Friday that retail sales in July had decreased by 1.2%, following a growth of 0.6% in June for both physical and online sales. Economists had previously predicted a 0.6% decrease for July. The larger-than-expected decline in retail sales for July is attributed to cool and rainy weather, which has led consumers to prefer staying at home rather than going to shops. These figures mark the first time in four months that retail sales have fallen below expectations, possibly indicating that consumers are succumbing to the pressures of rising prices and interest rates. The Bank of England is trying to slow down economic growth to control inflationary pressures, which has also resulted in an unexpected increase in the unemployment rate in the second quarter. Heather Bovill, Deputy Director of Investigations and Economic Indicators at the ONS, said: "It has been a particularly bad month for supermarkets, as reduced summer spending combined with rising living costs has led to low sales of clothing and food." "Sales at department stores and household goods have also significantly declined." Following the release of the data, the pound fell 0.2% against the US dollar to 1.2720, becoming the worst-performing currency among the G10 countries in early European trading. While retail sales have been declining, the cost of living crisis since 2021 has led to soaring commodity prices, resulting in consumers spending more money for fewer goods. In contrast to the retail data, economic growth, wage, and inflation data released in the past week have all been stronger than expected. Helen Dickinson, CEO of the British Retail Consortium, stated that consumers are spending more cautiously and reducing purchases of big-ticket items, especially computers and furniture, while book sales have shown some improvement. Dickinson said: "Retailers hope to boost consumption in the coming months as England fans celebrate the Women's World Cup final this weekend, families begin shopping for returning to school, and university students prepare for the new academic year." The ONS believes that the decline in clothing sales is due to reduced foot traffic in stores caused by wet weather across the UK. Food sales also decreased by 2.6%, with consumers citing price increases as the reason. Supermarkets reported a decrease in clothing sales, and the amount of food taken home by people also decreased. In July, total sales at non-food stores, including department stores, decreased by 1.7%. The UK's Met Office stated that this July was the sixth wettest on record, resulting in fewer people visiting shops. Ruth Gregory, Deputy Chief Economist at Capital Economics, commented that the sales decline "may be more related to exceptionally wet weather than the impact of interest rate increases on consumer spending." "However, as the effects of the Bank of England's interest rate hike are still in play and consumer confidence is declining, we remain pessimistic about the overall spending outlook for this year." Erin Brookes, Managing Director of Retail and Consumer at Alvarez & Marsal Europe, stated: "Despite inflation slowing down, food prices have remained high, affecting the quantity and demand for more discretionary categories of consumption." "Consumer spending in non-essential categories seems to be restrained, but travel bookings have surged due to the adverse weather conditions." Brookes said that unless tourism spending in August or back-to-school shopping in September stimulates sales, the sluggishness in July's economy may "become a trend." This marks a sharp reversal from June, when unexpectedly strong retail sales were stimulated by warmer-than-usual weather. Online retailers partially compensated for the weakness, with sales increasing by 2.8%. In addition to benefiting from the weather, they offered a variety of promotions. Amazon held its annual Prime Day in this month. The proportion of sales completed online reached 27.4%, the highest level since February 2022. Online sales reached record levels during the pandemic as consumers avoided or were unable to visit physical stores due to lockdowns. Jon Boland, General Manager of Clover, a payment service provider for retailers, said: "The wet weather in the UK has tested which industries are rain-resistant." "We have seen that garden centers and DIY stores have faced challenges as consumers choose to seek shelter indoors. Sales of women's clothing have shrunk, and in non-seasonal weather, women may not have had the demand to replace summer clothing. Sales of clothing are mainly driven by family clothing." After experiencing a decline in June, automotive fuel sales increased by 0.7% in July, which helped support overall sales data.