British retail sales dropped sharply in October, and consumer confidence weakened in November, adding to concerns about slowing household spending ahead of next week’s budget from finance minister Rachel Reeves.
The Office for National Statistics (ONS) reported on Friday that retail sales volumes fell 1.1% from September, marking the first monthly decline since May. Economists surveyed by Reuters had expected no change. On an annual basis, sales were up only 0.2%, far below the forecasted 1.5% rise.
The pound briefly slipped against the U.S. dollar following the data but soon stabilized.
Earlier in the day, GfK’s long-running consumer sentiment survey showed a broad decline in household morale. The report suggested that many consumers were “bracing for bad news” in Reeves’ budget, scheduled for November 26.
Rob Wood, chief UK economist at Pantheon Macroeconomics, said the increasingly uncertain run-up to the budget appears to be weighing on spending. He noted that falling confidence and softer sales growth point to growing caution among households.
Separate ONS figures showed government borrowing coming in higher than expected last month. This highlights the pressure Reeves faces as she prepares the budget. Analysts believe she may need to raise between 20 and 30 billion pounds through higher taxes. A likely downgrade to growth forecasts, rising borrowing costs, and parliamentary resistance to welfare cuts add to the challenge.
Overall consumer spending has remained muted. Economists link this to a high savings rate, lingering effects of the 2022 inflation surge, a cooling jobs market, and concerns about tax increases.
Major retailers have recently warned that uncertainty surrounding the budget is affecting sentiment, particularly for discretionary spending. However, some companies remain positive. Supermarket chain Sainsbury’s and retailer Marks & Spencer both expressed optimism about Christmas trading.
The ONS reported declines in supermarket, clothing, and online mail-order sales in October. Several retailers said customers delayed purchases in anticipation of November’s Black Friday discounts.
Retail sales volumes in the UK are still 3.3% below their pre-pandemic levels from February 2020.
