According to official figures, retail sales in the UK saw an unexpected increase in July, driven by online shopping deals. However, the fashion sector saw a decline in sales, and economists predict that sales volumes will continue to decrease as households struggle with the highest inflation in four decades.

Inflation-adjusted and seasonally adjusted retail sales volumes rose by 0.3% in July, defying expectations of a 0.2% drop. This small improvement comes after sales fell by 1.2% over the previous three months and were 3.4% lower compared to the previous year.

ONS statistician Darren Morgan noted that retailers reported a boost in sales due to various offers and promotions. The growth in sales was primarily driven by a 4.8% surge in online and mail order volumes, the largest monthly increase since December. Amazon’s annual Prime Day promotion, along with increased spending across various online retailers, particularly for household goods, contributed to this growth.

However, not all retail sectors saw positive results. Food volumes only increased by 0.1% after a boost in June from celebrations for Queen Elizabeth’s Jubilee. Clothing sales experienced a decline of 1.2%, and the exceptionally hot weather led to a 0.9% drop in fuel purchases.

The ONS highlighted that the long-term trend for sales remained downward. The Bank of England has warned that high inflation is likely to push the UK into a recession later this year. Martin Beck, chief economic adviser to EY ITEM Club, stated that with the squeeze on shoppers’ spending power and low consumer sentiment, the outlook for retailers is bleak.

Consumer price inflation in July reached an annual rate of 10.1%, the highest since 1982. This increase is driven by higher food prices and previous sharp rises in household energy bills. A consumer survey by GfK revealed that households are feeling exasperated by the rising cost of living, and consumer sentiment is at its lowest point since records began in 1974.

Household energy bills have doubled over the past year and are expected to increase again in October. Analysts predict that average annual bills will surpass £4,000 ($4,768) by January, compared to approximately £1,000 a year ago. Supermarkets have reported consumers switching to cheaper products, and frozen food chain Iceland has announced interest-free loans of up to £100 for its most financially vulnerable customers.

Useful links:
How Retailers Can Weather the Inflationary Storm
UK retail sales growth defies forecast as prices spiral