Shoppers are cutting back on spending as cost of living bites

Shoppers cut back on spending on clothes and other non-essential items last month as cost of living pressures and high energy prices began to bite on households.

Retail sales volumes fell by 0.9 per cent last month, exceeding economist expectations of a fall of 0.3 per cent, and wiping out the 0.4 per cent rise recorded in August.

The Office for National Statistics said the decline was the result of “continuing cost of living pressures, alongside the unseasonably warm weather reducing sales of autumn-wear clothing”.

Retail spending has held up well in recent months as the warm weather has encouraged greater spending and brought customers on to the high street but a key measure of household confidence unexpectedly fell this month, according to a survey by GfK, which reported an eight-point drop in sentiment in October to its weakest level since July.

Households have also said they will cut back on spending on food and gifts this Christmas as they battle with rising costs such as higher taxes, energy prices and mortgage costs.

Monthly spending in non-food shops declined by 1.7 per cent last month and online shopping by 2.2 per cent. Food sales was the only big spending category where spending volumes increased, by 0.2 per cent.

The September figures mean that overall retail sales contracted by 0.8 per cent in the third quarter of the year, compared with the same period last year. The data sends a worrying signal about the health of the economy, where growth has been kept in barely positive territory over the past three months. Latest figures for August showed that the economy expanded marginally by 0.2 per cent after a 0.4 per cent contraction in July.

Alex Kerr, at Capital Economics, said the figures suggested that the retail sector may have slipped back into recession after a brief recovery earlier this year. “The broad-based nature of these falls suggests that the lingering cost of living issues and the intensifying drag on activity from higher interest rates are at play,” Kerr said. “This doesn’t bode well for retail sales growth in the run-up to Christmas.”

Aled Patchett, head of retail and consumer goods at Lloyds Bank, said retailers would hope that continuing declines in inflation and sales during the festive period will entice consumers back to the shops by the end of the year.