There were fresh signs today that the UK may be struggling to get out of recession in a wait-and-see economy, with stuttering high street sales and faltering consumer confidence.
Retail sales for February stagnated month-on-month, coming in bang on zero, although that avoided an overall drop of 0.4% predicted by City experts.
Better clothing sales helped offset a slide in food and fuel, declines that pointed to cost-conscious shoppers cutting back on more expensive essentials.
Then, a highly influential and long running tracker of economic conditions also revealed the lingering sense of uncertainty during a time of recession.
The latest reading of GfK’s consumer confidence tracker, established for 50 years, stalled at -21 for March after a two- point decline in February.
Joe Staton, Client Strategy Director GfK, pointed to “a note of worry this month”:
“Look back to last year and it’s clear the improvements in consumer confidence seen most months since January 2023 have vanished”.
And GfK found that people were holding back big-ticket items, with its Major Purchase Index down 2 points.
“Are we temporarily on pause, or are consumers about to press ‘reverse’? In the run-up to the next general election?” asked Staton.
The bleak-looking picture came at the end of a week when inflation fell by more than forecasts, but the Bank of England the base cost of borrowing at a 16-year high of 5.25%.
And City experts are warning that the next interest rate meeting, due in May, will still be too early for a cut. Some traders are pricing in action for June, but the favourite month for what would be the first cut since March 2020 is August.
If the market gets that right, that means the benchmark rate that sets the price of mortgages and loans across the economy will have been over 5% for a full year.
The BOE has left rates up there – and signalled that they will be higher for longer – to fight off the wave of double-digit inflation stoked by high energy prices after Vladimir Putin’s invasion of Ukraine.
Having peaked at over 11% in October 2022, it was revealed this week that the latest consumer price index was 3.4%, moving near to the official 2% target for policymakers.
As rate rises increased mortgage costs and the price of loans, consumer spending was choked off to tame prices. That hit the wider economy. The UK entered the technical definition of recession – two successive quarters of a shrinking economy – at the end of last year.
It has made for tough conditions on the high street.
Natalie Ormond, the owner of a sustainable products retailer Smallkind, said: “Being a small retailer right now is awful. The cost of every single service we use has gone up and the money coming in is way down,” adding:
“Right now it feels like only fast and cheap products are selling. It's really tough out there.”
