Summer could be lull before the storm, say experts

July could be the lull before the storm for retailers and consumers, after the heatwave boosted sales of summer clothing, picnic treats and electric fans despite the intensifying cost of living crisis, according to experts.

The figures from the British Retail Consortium BRC showed a 2.3% increase in sales last month compared to a 6.4% increase the year before.

The sales growth was largely caused by inflation, which is more than 9%, and masks a larger drop in the number of items sold, according to the latest BRC-KPMG sales monitor.

The summer was an incredibly difficult trading period, according to Helen Dickinson, chief executive of the BRC. Consumer confidence remains weak, and the rise in interest rates coupled with talk of recession will do little to improve the situation, she said.

The Bank of England expects inflation to reach over 13% in October, when energy bills rise again, tightening the screws on struggling households. The consumers and retailers are in for a rocky road throughout the rest of 2022, which means that they are in for a rocky road. Some experts believe that rising inflation will lead to a recession that could last into next year and affect millions of the most vulnerable households, especially in the worst-off parts of the country.

The Bank of England forecast that inflation could reach 13% by the end of the year its highest since 1980, plunging Britain into a recession.

Spending on clothing and other non-essentials has held up so far this year, as warm weather and the chance to enjoy long-delayed overseas holidays and big family events, particularly weddings, have been underpinned by savings made by many during the Pandemic lockdowns.

Paul Martin, the UK head of retail at KPMG, said the summer could be a lull before the storm with conditions set to get tougher as consumers arrive back from summer breaks to holiday credit card bills, another energy price hike and rising interest rates. With stronger cost of living headwinds on the horizon, consumers will have to prioritize essentials and discretionary product spending will come under pressure.

Consumers are determined to enjoy a delayed holiday and an unrestricted summer. Pent up demand for new clothes has so far been at significant levels to keep the retail sector in good health. The trend for continued spending was reflected by users of Barclaycard, one of the UK's biggest debit and credit card operators, which had an increase in consumer spending on electronics 8.6% clothing 4% and health beauty 3.1% in July compared to June.

In one of the first signs that families were cutting back on social plans because of the higher cost of living, hospitality and international travel had declined month-on-month declines. Spending on both of these categories was more than twice that of last year.

In July, spending on essential items was up 7% compared to the year before, a step up from the 4% rise in June, driven by fuel and supermarket shopping. Its card users spent 29.9% more on petrol and other fuels while utility bills went up 43.9%.

Restaurants and pubs, and other businesses dealing in non-essentials are expected to be put under pressure due to the pinch on consumer finances caused by higher bills.

According to the Nationwide building society, shoppers are switching to discount stores, dropping brands in favor of supermarkets own-label goods and reducing spending on luxuries such as subscription services and gambling.