Yesterday’s announcement by the Bank of England to raise interest rates to a fourteen-year-high of 3.5% will have sent a shiver down the spines of UK retailers, and it is nothing to do with the cold snap the country has been experiencing. The UK retail sector, both physical and online, face significant obstacles, and it is difficult to see where the light is at the end of the tunnel.
The rise in the UK interest rate increase to a fourteen-year high will create additional shockwaves in the country’s retail sector, and there are expected to be more rises in 2023. In the main, most will try to gloss over negative news by introducing a positive spin; however, when it concerns official figures, this is a tough task.
According to the Office of National Statistics, November 2022’s retail sales volumes were estimated to have fallen by 0.4%, which was on the back of a 0.9% rise in October. Perhaps even more worrying was the fall in business experienced by non-store retailers, predominantly made up of online retailers who saw sales volumes fall by 2.8% in November.
However, there are some glints of light in the data, and one is that clothing stores’ sales volumes rose by 2.1% in November 2022, mainly because of growth in footwear stores. To gain a more complete perspective, if we look at the same period a year earlier, retail sales volumes fell by 6.2% in the three months to November 2022, while sales values rose by 4.4%.
What are the underlying reasons behind the UK’s poor retail sales data?
One thing we Brits are very good at is offering excuses, “the World Cup caused people not to spend”, “We’re fed up with Capitalism!”, “We’d prefer to buy British; however, finding something made in Britain is proving difficult.”
Even if none of these explained the current retail problems, there’s still plenty of time to wheel out the catch-all stock excuse for everything that is seemingly wrong with the world, “It’s Russia’s fault! And, If it’s not them, it must be China!”
In reality, most of the above reasons wouldn’t be enough to cover the holes in the HMS United Kingdom, which have been whittled larger and poorly patched by politicians whose goal was to create a footnote in history, taking the things that worked and changing them for the purpose of self-credit.
The UK’s current retail sector woes are far more likely to be due to fear of the rise in living costs born from a combination of reasons and a multitude of poor decisions by politicians over recent decades.
However, that’s our opinion. We wanted to get the views of someone with considerably more insight than we have, and someone well-qualified to do this is Charlie Huggins, Head of Equities at Wealth Club.
He said, “Given all the doom and gloom surrounding the UK economy, today’s retail sales figures are far from catastrophic. UK consumers may not be feeling flush with cash, but they are still spending at a similar rate to last year. Stores are faring better than online, probably aided by the Royal Mail strikes, and clothing sales in-store rose, which doesn’t exactly suggest Armageddon.
All eyes now turn to the crucial Christmas period. This is the first Christmas since the pandemic without any lockdown restrictions, which may encourage one final spending splurge. The Royal Mail strikes should also continue to provide some festive cheer for traditional retailers by encouraging more last-minute shoppers into stores.
However, the real test for retailers will be what happens next year.
Pressure on UK consumers is mounting and is only likely to build in the coming months. With many people on fixed-rate mortgages, the impact of interest rate rises has yet to be really felt.
One thing is certain – as more people start tightening their belts, UK retail investors need to be even more picky than usual. We’ve already seen the likes of Made.com and Joules go to the wall. They won’t be the last. Any retailer that lacks a distinctive proposition and struggles to generate cash faces an uphill battle heading into 2023.”
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