UK retail sales fall as consumer confidence tumbles

By William Schomberg

LONDON, Oct 23 (Reuters) - British consumers ‌reined in their ​shopping in ​September as a warm start to the autumn hurt clothing sales and higher fuel prices ate into household budgets, while separate data showed confidence levels plunged in October.

Retail sales volumes dropped by ‌0.4% in September from August, a bigger decline than a fall of 0.1% expected by ⁠most economists in a Reuters poll.

British shoppers had surprised analysts with the strength of their spending in recent months, even as the ‌conflict in the Gulf pushes up fuel ‌and domestic energy prices.

Britain's two biggest food retailers Tesco and Sainsbury's, fast-food chain Greggs and home improvement retailer Kingfisher all recently upgraded their annual profit guidance.

Over the three months to September, total sales volumes rose ​by 0.7%, helped by the soccer World Cup and a summer heatwave, according to the Office for National Statistics which revised up its monthly figures for August and July.

However, major retailers have highlighted the challenging conditions ⁠for consumers ahead of next week's budget announcement by finance minister John Healey - who has promised a bit more help with the cost of living - ​and signs of more inflation pressure in 2027.

Supermarket sales fell in September after growth in July and August, the ONS said.

A survey published earlier on Friday showed consumer confidence ​in October suffered its sharpest month-on-month fall since early in the ‌COVID-19 pandemic. Excluding the pandemic, the last similar-sized drop followed the June 2016 Brexit vote.

“The drop in retail sales in September and sharp fall in consumer confidence in October ⁠raises the risk that the economy’s recent run of resilience might be coming to an end," Thomas Pugh, chief economist at accountancy firm RSM UK, said.

Analysts at consultancy Pantheon Macroeconomics said it was unclear if the drop was due to worries about the ⁠budget, a fading of the boost to confidence seen after Andy Burnham became prime minister or something more fundamental.

"Confidence had been ​at a two-year high. But it seems likely that overall GDP growth will ease sharply from the 0.7% quarter-to-quarter pace it is on track for in Q3. We look for quarterly growth of 0.2% in Q4," they said.

The ONS said fuel sales volumes ‌in September rose by 2.2% from August when drivers filled up their tanks only partially in response to the jump in fuel prices caused by the Iran war.

The ‌value of spending on fuel rose by more than 6% in September following a similar month-on-month increase in August.

That pressure on ⁠household spending is unlikely to abate quickly - Brent ‌crude oil prices hit a five-month ​peak of $114.10 a barrel on Friday on fears of an escalation of the conflict in the Middle East.

(Writing by William Schomberg; additional reporting by James Davey; editing by Sarah Young and ‌Susan Fenton)

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