Britain’s retailers are bracing themselves for a tough Christmas trading period as hard-pressed consumers react to a worsening cost of living crisis by cutting back on spending.
With the most profitable period of the year for shops and online outlets approaching, two surveys out on Tuesday underlined the extent of the squeeze on household budgets caused by the UK’s double-digit inflation rate.
The monthly snapshot of spending by Barclaycard, which accounts for half of debit and credit card transactions, found that 50% of consumers were planning to tighten their belts this Christmas, cutting back on presents, food and drink, and socialising.
Esme Harwood, a director at Barclaycard, said: “Rising petrol and supermarket costs continue to bite but Brits are spending less on energy bills as government support kicks in and people find ways to economise at home. Consumers continue to swap big nights out for cosy evenings in as they reduce their discretionary spending, while health and beauty, and home improvements enjoy a little boost.”
Two in three consumers (66%) were finding ways to save energy at home to reduce the cost of their gas and electricity bills, Barclaycard found. Many of those were wearing more layers at home (63%), while 56% were avoiding using central heating unless absolutely necessary.
One in five (20%) had bought an electric blanket or hot-water bottle, and almost a quarter (23%) were buying or already using an air fryer to help reduce the cost of cooking.
In October there were the first payments to consumers under the government’s energy bills support scheme but Harwood said these were unlikely to change the mood.
“With the festive season around the corner, we’re likely to see further cutbacks, as Brits reign in their Christmas spending. Consumers are adopting a restrained approach to festivities, reaching for pre-loved gifts and setting spending limits to manage their costs during this traditionally expensive time of year,” she said.
Barclaycard said the amount charged to its cards was 3.5% higher in October than a year ago but said spending was falling in real terms because prices had risen more rapidly. The annual inflation rate rose to 10.1% in September.
Consumer confidence had been dented by the political and economic uncertainty between late September and late October, the period covered by its report. Since then the Bank of England has announced an increase in interest rates to 3%, while further economic pain is expected next week when the chancellor, Jeremy Hunt, is expected to use his autumn statement on 17 November to raise taxes and cut spending.
The British Retail Consortium (BRC) urged the government to freeze business rates so that retailers could avoid passing on higher costs to customers. Its monthly BRC-KPMG sales monitor found a small 1.6% rise in the value of goods sold in stores and online was actually a large drop in spending once inflation was taken into account.
Paul Martin, the UK head of retail at KPMG, said: “This increase is being driven by inflationary pressures and does not tell the true picture of sales volumes dropping as consumers purchase fewer products per shop.
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“Sales across almost every category both online and in store fell year on year as consumers adjust to shrinking household incomes.”
Helen Dickinson, the BRC’s chief executive, said: “Christmas will come later than last year for many and may be more gloom than glitter as families focus on making ends meet, particularly as mortgage payments rise.”
With little sign of cost pressures easing, Dickinson said retailers were looking to the football World Cup and Black Friday for a sales boost.
She added: “Retailers face an additional government-imposed £800m inflationary increase in their business rates bills next year so the government should freeze rates and reform the broken transitional relief system to alleviate cost pressures that are feeding through to higher prices at a time when people are least able to afford them.”