Retail shares fell on Friday even though new data showed sales picked up slightly in July in contrast to a gloomy new reading of consumer confidence, which hit its lowest number since the data began to be compiled.
UK retail sales volumes rose by 0.3% in July 2022 compared to predictions for a 0.2% decline, though the ONS revised down June’s number slightly to -0.2%.
Sales volumes were 2.3% above their pre-Covid February 2020 levels, but down over the past year and for the three months to July 2022 sales volumes fell 1.2%.
Jackie Mulligan, ShopAppy founder and member of the government's High St Task Force, said: “The three-month decline of 1.2% paints a much more accurate picture of the UK high street than the July figure alone.
"People just aren't spending amid the cost of living crisis. It's no surprise to see clothing and household goods continue to be hit particularly hard. Retailers selling non-essentials are in a highly precarious position as inflation hits double digits.”
The three-month dip also chimed more with the trend reported in GfK's monthly consumer confidence index.
GfK’s main confidence barometer showed a fall in August to minus 44, the lowest level since records began in the 1970s, and reflecting “acute concerns” about the soaring cost of living and bleak economic outlook.
The forecast for the next 12 months is also gloomy, recording a heavy fall in recent months to a new low of minus 60.
"A sense of exasperation about the UK’s economy is the biggest driver of these findings," said Joe Staton, GfK's client strategy director.
All five measures - which include confidence in personal finances, general economic outlook, and savings - were down in comparison to the same time last month.
Samuel Tombs, chief economist at Pantheon Macroeconomics, said households’ incomes were boosted significantly in July by both the increase in the threshold for employees’ NI contributions and by the payment of a £326 cost of living grant.
In addition, wages likely will rise at a similar quarter-on-quarter rate to prices in quarter three, given that electricity and natural gas prices will not rise until October and motor fuel prices will be lower than in quarter two.
"But the real challenge for retailers will come this winter, as the increase in the energy price cap in October looks set to deliver a near -4% hit to real disposable incomes."
Tombs said he remained hopeful that a combination of further fiscal support from the next prime minister and a drawdown of savings by mid-to-high income households will suffice to keep households’ expenditure broadly steady in quarter four and quarter one, though a consumer-led recession "cannot be ruled out".
Among listed consumer companies, clothes retailers Boohoo Group PLC (AIM:BOO) fell over 2.8%, Dunelm Group PLC (LSE:DNLM) dropped 1.8% and Next PLC (LSE:NXT) was down 1.3%.