UK retail sales fell for the first time in three months in February, underscoring the weakness in consumer spending even before the global energy shock began.
Data from the Office for National Statistics (ONS) showed retail prices fell by 0.4 per cent during the month, reversing a 2 per cent rise in January. Although the decline was less severe than analysts had predicted, it reflects a loss of momentum in the retail sector at a time when economic conditions were already tightening.
The decline came from weak consumer demand, with supermarkets reporting weak prices and poor weather dampening sales of housewares and seasonal items.
Sadly, these figures were compiled before the escalation of the Middle East conflict involving Iran, a development that is expected to increase inflation and put more pressure on the domestic currency in the coming months.
Economists warn that rising energy costs, which are already feeding into fuel prices and utility bills, are likely to squeeze disposable income, forcing consumers to cut back on discretionary spending.
Retailers are also facing rising costs across the supply chain, some, including high street names, indicating that price rises may be inevitable if disruptions continue.
Despite the monthly decline, the broad trend over the past quarter remains slightly positive. Sales prices rose 0.7 percent in the three months to February compared to the previous period, supported by strong online activity and niche categories such as art and collectibles.
However, annual growth slowed to 2.5 percent, down from 4.5 percent recorded in January, indicating that the pace of recovery is slowing.
Performance in all sectors was uneven. While categories such as video games, wine supplements and sports have performed relatively well, apparel retailers have struggled, reflecting both seasonality and changing consumer priorities.
Analysts say the data highlights a change in consumer behavior, with families becoming more selective in their spending.
MHA’s Rajeev Shaunak said the figures are “not as bad as feared” but indicate that the sector is vulnerable to external shocks.
“Families are likely to remain cautious, prioritize spending on essentials and limit discretionary purchases,” he said.
CI&T’s Melissa Minkow added that consumers are increasingly taking the time to assess value before making a purchase, weighing factors such as price, timing and need more carefully than in previous years.
Separate data suggests that consumer sentiment has already begun to deteriorate. GfK’s index of consumer confidence fell to -21 in March, its lowest level in almost a year, with households expressing growing concerns about the broader economic outlook.
GfK’s Neil Bellamy said a “fear of panic” is rising among consumers as they assess the potential impact of the Middle East conflict on prices and living standards.
Decline in confidence is seen as a leading indicator of future spending patterns, raising concerns that retail demand may weaken further in the coming months.
Economists expect the retail industry to face increasing pressure as the year progresses. Matt Swannell of the EY Item Club said the conflict had already worsened the outlook, while Ashley Webb of Capital Economics suggested that the drop in confidence could mark the start of a sharp decline in domestic spending.
With inflation expected to pick up again and interest rate cuts now less certain, the risk of an “inflationary” environment, where growth is weak but prices continue to rise, becomes a key concern.
For retailers, the challenge is to balance rising costs with weak demand. Passing on higher costs risks depressing sales, while absorption erodes already tight margins.
Figures from February suggest that even before the latest global shock, the UK retail industry was in a shaky state. With more pressures now building, the coming months are likely to test both the resilience of consumers and the flexibility of businesses across the high street.
