The traditional January sales on the high street failed to inspire a revival in consumer spending last month, as households continued to cut back amid the cost of living crisis.
Britain’s largest retailers said sales growth slowed last month as higher living costs weighed heavily on consumers, while weather conditions and strikes on the transport network also hit spending.
Total sales rose by 1.2% in January compared with a year earlier, below the annual average growth rate of 3.4%, according to the British Retail Consortium (BRC). Much of the rise was the result of inflation driving up the value of goods being sold, masking a drop in sales volumes and a collapse in online spending.
“While the January sales helped to boost spending in the first two weeks, this did not sustain throughout the month,” said the BRC chief executive, Helen Dickinson.
“Larger purchases, such as furniture, household appliances, and electricals, remained weak as the higher cost of living continued into its third year.”
The latest snapshot follows a disappointing Christmas for retailers after official figures showed a 3.2% monthly decline in December, marking the sharpest plunge since shops were forced to close during the Covid pandemic in 2021.
Confirming a lacklustre start to 2024 as households continue to face sustained pressure on living costs, separate figures from Barclays showed consumer card spending grew 3.1% year on year in January – below the current headline rate of inflation of 4%.
The bank, which processes almost half of UK credit and debit card transactions, said there were some signs of strength amid an increase in consumer confidence.
The latest figures showed resilient demand for digital content and takeaway meals as consumers saved money by staying in and watching new TV releases such as Fool Me Once on Netflix and Mean Girls on Amazon Prime. Growth in supermarket spending also increased to 5.2% in January, up from 2.8% in December.
In contrasting claims about the health of the retail sector, the BRC suggested warm periods in January had hit spending on winter clothing and footwear, while Barclays blamed the fact consumers stayed away from the shops on cold weather.
Separate figures from S&P Global and the Chartered Institute of Procurement and Supply showed a solid increase in business activity in the UK’s services sector in January.
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The purchasing managers index for the sector, which surveys activity in the services industry excluding retail, increased from 53.4 in December to 54.3 in January, the highest level since May 2023. A reading of 50.0 separates growth from contraction.
Barclays said its survey of consumer confidence pointed to improving optimism, with confidence in household finances and ability to spend hitting the highest level for more than two years.
However, the BRC said increasing confidence was yet to convert into stronger levels of consumer spending.
Linda Ellett, the UK head of consumer markets, leisure and retail at the accountancy firm KPMG, said: “While there are some positive signs that mortgage rates are starting to fall and stabilise, and shop inflation has fallen to its lowest level in over a year, the feelgood factor has yet to materialise at the tills.”
