Retail sales slide in September as government borrowing mounts

Retail sales tumbled in September, official data showed on Friday, weighed down by soaring prices, the cost-of-living crisis and the state funeral of Queen Elizabeth II.

According to the Office for National Statistics, retail sales volumes fell 1.4% in September, making them 1.3% below February 2020, pre-Covid. Analysts had been expecting a decline of around 0.5%.

Year-on-year, sales volumes slumped 6.9%, against expectations for a 5% decline, while sales values rose 3.8%.

The ONS said retailers blamed rising prices and the cost-of-living squeeze for the fall in sales, with the data further affected by the bank holiday for the late queen’s funeral, when many shops were closed.

It also revised August’s fall in sales volumes, to 1.7% from 1.6%.

In the three months to September, sales volumes were down by 2.0% when compared to the previous three month-period, extending a downward trend that started in summer 2021.

Year-on-year, sales volumes fell 5.4% over the same period, while sales values spiked 5.5%.

Danni Hewson, financial analyst at AJ Bell, said: “After Covid, we were asked to spend our way out of recession. That’s simply is not going to be an option during the new recession the country is stumbling towards.

“There are huge problems for the government to overcome once it deals with the little issue of who will walk through the revolving door at Number 10.”

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “In theory, retail sales have scope to recover a little in the fourth quarter, given that households’ disposable incomes are being strongly supported by one-off grant payments from the government.

“But the continued weakness of GfK’s composite index of consumer confidence signals that households likely will be very cautious.

“We expect households’ real expenditure to fall by about 1.5% year-over-year in 2023; retailers won’t be shielded from the downturn.”

Alongside the retail sales data, the ONS also published figures showing a steep increase in government borrowing in September. Public sector net borrowing excluding public sector banks (PSNB ex) was £20bn, £2.2bn up on the same month a year previously and the second-highest September since records began in 1993.

Most economists had been expecting a rise closer to £17.5bn.

In the financial year to September 2022, PSNB ex was £72.5bn, £24.9bn less than in the same period last year but £35.6bn more than in the financial year to September 2019, pre-Covid.

Public sector net debt excluding public sector banks stood at £2.45trn as at the end of September, around 98% of GDP. That was an increase of £213bn, or 2.5 percentage points of GDP, compared to September 2021.

Interest payable was £7.7bn in September, up £2.5bn on the same month a year previously and the highest September figure since April 1997.

Victoria Scholar, head of investment at Interactive Investor, said: “The post mini-budget bond market sell off, which sent yields soaring, sharply increased the interest payable on central government debt during the final week of September, adding to repayment charges facing the Treasury.

“At least now Jeremy Hunt’s new fiscal strategy of cutbacks and tax increases complement rather than conflict with the Bank of England’s desperate attempts to curtail rising price levels.”