UK retail sales growth slows in August as summer boost fades

The retail slowdown provides another weak data point for the Bank of England to consider in its next policy decision, as the loss of momentum in BRC and Barclays readings, along with the sharp decline in consumer confidence, reinforces the view that the UK consumer is losing steam rather than overheating. That is a marginal headwind for GBP, as it reduces some pressure on the BoE to keep rates higher for longer, but a single month of consumer data is unlikely to change near-term policy pricing alone. The youth jobs initiative is a longer-term story for GBP, more connected to the structural labour market debate around NEET numbers and minimum wage costs than to near-term rate expectations, but it provides a useful data point on how the retail sector is positioning itself in response to government pressure to address youth unemployment.

The boost from summer heat to UK retail has quickly dissipated, and the sector is now attempting to address a youth unemployment problem it has contributed to, or at least shares responsibility for.

Summary:

• BRC total retail sales increased 0.7% year-on-year in August, down from 1.3% in July, marking the smallest rise since April.
• Like-for-like sales growth slowed to 0.5% from 1.0% in July.
• Food sales growth eased to 2.6% from 3.8% in July, while non-food sales declined 0.8%, extending a 0.7% fall in July.
• Barclays reported consumer spending rose 2.1% year-on-year in August, up from 2.0% in July, but confidence dropped to 26% from a 21-month high of 30% in July.
• Official retail sales volume growth had already slowed to 1.6% in July from 3.8% in June.
• Separately, the BRC and the Department for Work and Pensions announced a plan to create 100,000 jobs for young people not in education, employment or training by the 2029 election, along with a new work placement programme for 18-24 year olds.

According to British Retail Consortium data released Tuesday, UK retail sales growth hit a four-month low in August, as the boost from record summer heat started to wane. Total sales rose 0.7% year-on-year, down from 1.3% in July, while like-for-like sales (excluding floor space changes) slowed to 0.5% from 1.0%. Linda Ellett, head of consumer, retail and leisure at survey sponsor KPMG, said summer spending had effectively started early this year as higher May temperatures pulled forward related purchases, and while heat and holiday spending continued to support food, drink, health and beauty categories into August, most other categories could not sustain another month of growth.

The category breakdown reflected that change. Food sales growth eased to 2.6% from 3.8% in July, below the average over the past year, while non-food sales fell 0.8%, extending a 0.7% decline in July and well below the roughly 0.2% average growth of the past year. The BRC said shoppers cut back on big-ticket items like furniture and household appliances, opting for cheaper health and beauty products. Separate Barclays data, also released Tuesday, showed a similarly mixed picture: overall consumer spending rose 2.1% year-on-year in August, slightly faster than July's 2.0%, but consumer confidence fell to 26% from a 21-month high of 30% in July. Official retail sales volumes had already slowed sharply to 1.6% in July from 3.8% in June.

Against that backdrop, the BRC and the Department for Work and Pensions announced a separate initiative to create 100,000 jobs for young people not in education, employment or training by the next election in 2029. Britain currently has just under 1 million people aged 16 to 24 classified as NEET, a figure that reached its highest level since 2013 earlier this year. The plan includes a new voluntary work placement programme offering two to four week placements to 18-24 year olds receiving unemployment benefits, with around 11,000 places available initially. Retailers and their suppliers account for nearly a quarter of youth employment in Britain, and some employer groups have previously cited rises in the minimum wage and higher employer social security contributions as factors behind the increase in youth unemployment.