The scale of the challenge facing Britain’s new Chancellor Rachel Reeves was laid bare today after a flurry of fresh data betrayed an economy stuck in reverse gear and a Treasury saddled with ballooning deficits.
Retail sales figures for June came in significantly worse than anticipated. Sales were down 1.2% compared to the previous month, meaning the sector delivered no growth in the first half of the year. Economists had predicted a much shallower fall of 0.6%.
The decline took place across the board, impacting all categories except for fuel, according to data from the Office for National Statistics. Department stores fared the worst drops, with sales down more than 3% month-on-month, while household goods stores were not far behind with a more than 2% fall.
Consumer confidence figures released by GfK today will have failed to lift retailers’ moods, with a subdued one-point improvement in the overall index score in July along with no change to confidence in the UK’s wider economy over the next 12 months, which stood at minus 11 points.
But their hopes may have been buoyed by a seven point uptick in the major purchase index – an indicator of confidence in buying big ticket items, that could translate into improved footfall in the months to come.
Erin Brookes, European Retail and Consumer Lead at Alvarez & Marsal, said: “Unfortunately June has been a washout for retail sales, with retailers yet to sustain two consecutive months of sales growth this year, with another slowdown after an uptick in May.
“The poor weather in June saw disappointing sales of summer goods including across food and clothing. This comes despite significant discounting and deflation in fashion retail, with volumes remaining stagnant.
“Looking ahead, England reaching the final of the Euros, and the start of the school holiday, may have driven sales higher in July, but retailers will be concerned about structural volume decline against a backdrop of intensifying competition.”
In a further blow, the June budget deficit stood at £14.5 billion, well ahead of the Office for Budget Responsibility’s forecast of £11.6 billion, while borrowing in the first three months of the fiscal year stood at nearly £50 billion, £3.2 billion ahead of forecasts, erasing hopes of a comfortable windfall for Reeves as she prepares to deliver her first budget in September.
That comes on top of wage growth data released yesterday showing the rate of increase stuck at 5.7% for May, eroding the prospects of an August interest rate cut by the Bank of England in signs of more pain ahead for mortgage holders.
Reeves this week warned of the “difficult decisions” that lie ahead to fix the public finances, as pressure mounts on the chancellor to find fresh sources of tax revenues ahead of the budget, despite Labour ruling out a number of possible tax increases during the general election campaign.
