As Christmas consumer spending heads towards its final hurdle, retailers will no doubt be hoping for a continuance of the slight uplift in sales as reported by the Office of National Statistics last week. Earlier this year, the British Retail Consortium (BRC) and KPMG reported like-for-like sales across the sector rose by a “meagre” 0.6% in November compared to the same period last year. However, more recently, the ONS reported that sales volumes, boosted by Black Friday, were up 1.1% in the month, ahead of the 0.4% that City of London analysts had expected. It seems retail customers decided to take advantage of some of the offers available, driven perhaps by the constraints on household finances and a consequential need to reduce the overall cost of the festive period. A more measured consumer approach has therefore meant “household goods stores had a good November, with a number of businesses saying that Black Friday promotions boosted sales,” said Rhian Murphy of the ONS.

Generally retail sales account for around 30% of household expenditure, yet it was the purchase of electrical household items which received a particular uplift last month and contibuted to the ONS figures. The story is not quite so positive for food purchases, with the ONS reporting that the quantity of food bought in November fell by 0.1% compared to the same month last year, yet the amount spent increased by 3.5%, reflecting a rise in food prices that has contributed to the increase in inflation.

Consumer confidence remains low

This is perhaps a more telling picture of low consumer confidence levels. Consumers have taken advantage of the sales in November, rather than those in December, as part of a measured approach to spending, meaning Black Friday sales were an exception. It seems that retailers will continue to face challenging conditions. Indeed it is highly probable that retailers will still face daunting sales figures due to inflation rising to 3.1% in November, the highest it has been for 6 years.

High mortgage debt

Constrained household finances, stagnant wage growth and rising inflation mean families will continue to feel the squeeze – a view which is supported by a recent study of over 6,000 households for the Bank of England. This showed UK finances dipped following the Brexit vote, with an increase in people reporting high mortgage debt.

The survey, carried out by the research firm NMG Consulting on behalf of the Bank in September, also reported the average borrowing on consumer credit was c.£8,000 but warned that the latest survey data did not appear to pick up the continuing trend in the official data – which shows an annual growth rate of almost 10%. Yet as banks have tightened their lending criteria and the fact the cost of living is rising at the fastest rate in five years it comes of little surprise to learn that consumer confidence remains low.

Indeed as Close Brothers Retail Finance Managing Director Alex Marsh notes; “The final run up to Christmas may prove more difficult than usual for retailers as they battle low consumer confidence amid increasing inflation and a squeeze on wages. Retailers need to prepare for the squeeze on consumer spending and consider offering consumers alternative flexible payment options to help spread the cost of big ticket Christmas items.”

Access to responsible credit will be of utmost importance in 2018 as households continue to juggle their finances amid uncertain economic conditions and the path of Brexit is still to be fully determined…

Greg Stevens, Chief Executive Officer, CCTA