Retailers suffer unexpected decline in sales - latest updates

The cost of borrowing for the Government has reached its lowest point since May after the slump in retail sales.

The yield on 10-year UK gilts has dropped more than eight basis points to 4.06pc as traders ramp up bets on cuts to interest rates.

The yield on the two-year bond, which is more sensitive to changes in the interest rate outlook, was down nearly nine points to 4.43pc.

The yield on bonds is the return the Government promises to pay buyers of its debts.

Money markets are now pricing in 84 basis points of cuts by the Bank of England next year, compared to 78 on Thursday, amid signs that the economy is weakening.

Traders expect the first quarter point rate cut from their 15-year highs of 5.25pc to have happened by June.

After the slump in retail sales in October, Emma Mogford, fund manager at investment group Premier Miton, said:

Having enjoyed the post-Covid rally in spending, it now appears consumers are feeling much more cautious.  

In my mind this is evidence that interest rate rises are being effective in slowing demand.  

UK retail company shares may be weak on the back of this, but the real test will be the all-important Christmas trading period.

Nationwide Building Society said mortgage arrears have increased slightly as it warned that higher interest rates remain a worry for bosses.

The lender has grown its profits and reported record-high financial benefits for members as it said its savings rates are higher than the market average.

The lender reported an underlying pre-tax profit of £1.3bn in the six months to September, up from £980m the year before.

Its financial benefit for members hit £885m, which it said reflects the group passing on higher interest to savers than rival banks on the market.

But the building society said the level of borrowers falling into arrears increased slightly, although remaining low, as higher interest rates and persistent inflation remain key risks.

The FTSE 100 gained at the open as the weaker retail sales raised hopes that the Bank of England will not need to raise interest rates again to lower inflation.

The UK’s blue-chip index rose 0.2pc to 7,426.81 while the more domestically-focused FTSE 250 gained 0.4pc to 18,427.09.

Businesses fear they will not survive unless sales pick up as consumers tighten their purse string as they face the highest interest rates in 15 years.

Chloe Moss, co-owner at Rotherham-based home cocktail gift provider, The Blind Badger Cocktail Company, said: 

October was really quiet. If sales don’t pick up between now and the end of the year, we won’t make it into 2024. 

We’re in a Catch-22 situation as we can’t generate sales without advertising but we need sales to be able to afford to advertise. It’s a very sad time for us. 

Racheal Straughan, director of the Newcastle-based small retailer e-commerce marketplace Mayfli, added: 

There is a sense that the upcoming Christmas season may not bring substantial improvements, and a growing number of the businesses we work with are considering closing next year if the situation doesn’t improve. 

Overall, for many sellers, 2023 has been even more challenging than the Covid years.

Helen Dickinson, chief executive of the British Retail Consortium, said the retail sales slump showed the need for the Chancellor to freeze business rates when he gives his Autumn Statement next week. She said:

More expensive purchases, such as laptops and electrical appliances continued to not perform well and Christmas spend took off to a slower start as households held out for Black Friday bargains. 

Meanwhile, cosmetics and toiletries had another strong month, due to the “Lipstick Effect”- where the high cost of living meant people spent more on smaller indulgences.

Retailers are committed to delivering an affordable and festive Christmas for their customers, and are continuing to invest in lowering prices. 

But, their efforts are put at risk by the £480m-a-year increase to business rates from April 2024. 

The Chancellor must prioritise freezing rates in the Autumn Statement next week, or else this added cost pressure will likely push up prices for hard-pressed households.

Simon French, chief economist at Panmure Gordon, called the figures “challenging”:

Alex Kerr, assistant economist at consultancy Capital Economics, said the data “suggests higher interest rates are taking a bigger toll on real consumer spending”. 

He said that “as that drag continues, we think retail activity will remain weak in the run up to the crucial festive period”.

He added: 

We expect consumer confidence to remain weak and to continue to weigh on real consumer spending. 

After declining by 0.4pc quarter on quarter in Q3, we think it has further to fall over the coming quarters.

As retail sales slumped in October, Helena Davies, head of retail at law firm Brabners, said:

October’s sales represent a slow start to a crucial quarter for the retail sector. However, there’s reason for retailers to be cautiously optimistic for the final stretch of 2023.

Household costs remain significantly higher than in previous years, but consumers are likely to be more emboldened to spend in the knowledge that inflation has fallen to a two-year low and that their energy bills will be lower this winter.

Retail bosses won’t be expecting any early presents from the Chancellor at next Wednesday’s Autumn Statement though. 

Speculated rises in fuel and alcohol duty, and an increase to the National Living Wage, will serve to increase brands’ overheads and create debate as to whether those costs should be absorbed or passed on to consumers.

Heather Bovill, deputy director for surveys and economic indicators at the ONS, said:

Retail sales fell again in October to their lowest level since February 2021 when widespread lockdown restrictions were in place.

After rebounding in September, fuel sales dipped with increasing prices discouraging customers, while food sales also dropped as consumers prioritised essential goods.

It was another poor month for household goods and clothes stores with these retailers reporting that cost-of-living pressures, reduced footfall and poor weather hit them hard.

However, it was a better month for online retailers, the only main sector to report growth in October.

Britain’s retailers do not look in good shape as they prepare for the run-up to Christmas, after suffering a 0.3pc fall in sales volumes last month.

More worryingly, the data for the previous month is worse than initially thought, with the ONS saying volumes were down 1.1pc.

A fall in fuel sales was the main factor behind the drop, dropping by 2pc in October, while food stores expected a 0.3pc decline.

The ONS said that retailers suggested that the cost of living, reduced footfall and the wet weather in the second half of the month contributed to a fall in non-food store sales, which were down 0.2pc following a 2.1pc decline in September.

The one glimmer of hope came from online retailers, were sales were up 0.8pc after a decline of 2.4pc the previous month.

Thanks for joining me. Retail sales suffered an unexpected decline in sales in October, official figures showed, in a sign that the economy is slowing down.

Sales volumes were down 0.3pc last month and the Office for National Statistics said September was worse than previously thought, down 1.1pc from an initial estimate of 0.9pc.

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What happened overnight 

Asian stocks were mostly lower after Wall Street drifted to a mixed finish as momentum slowed following a strong rally in the first half of November.

Hong Kong’s Hang Seng sank 2.2pc, to 17,445.56, dragged lower by a 10pc slump in shares of Chinese e-commerce giant Alibaba following its cancellation of a plan to spin off its cloud computing unit. 

The company blamed uncertainties due to US chip restrictions. Alibaba shares dropped as much as 10pc in New York on Thursday.

The Shanghai Composite index edged 0.2pc lower to 3,046.15.

Tokyo stocks shrugged off earlier losses to close higher after Bank of Japan Governor Kazuo Ueda indicated in his annual report to the parliament that the central bank has no immediate plans to change its ultra-lax monetary policy, which has kept interest rates at minus 0.1pc for years. 

The benchmark Nikkei 225 index up 0.5pc, or 160.79 points, to end at 33,585.20, while the broader Topix index gained 1pc, or 22.43 points, to 2,391.05.

US stock markets did not move much yesterday. The Dow Jones Industrial Average closed down 0.1pc at 34,945.47, while the S&P 500 rose slightly by 0.1pc to 4,508.24. 

The technology-focused Nasdaq Composite rose 0.1pc to 14,113.67. 

US Treasury yields fell after data for the States showed unemployment claims had risen more than expected, reinforcing the view that the US Federal Reserve will look to cut interest rates next year. The yield on 10-year US Treasury notes fell 8.4 basis points at 4.453pc.