UK Consumer Confidence Falls as Retailers Warn of Rising Costs
UK confidence in the economy fell to -40 in October as grocery cost concerns grew and retailers called for relief from rising business expenses.
Consumers are increasingly worried about the economy and their household finances, even as they expect to spend more in the run-up to Christmas. That tension is central to the retail outlook: planned seasonal spending may support sales, but higher prices and pressure on household budgets could limit how much customers can afford.
The British Retail Consortium (BRC) index put confidence in the state of the economy at -40 in October, down from -32 in September. It was the third consecutive monthly decline. The reading on expectations for personal finances over the next three months also worsened, falling from -15 to -18. The BRC said that was the second-lowest level on record.
At the same time, consumers’ spending expectations rose from a net reading of five to 15. The BRC linked that increase in part to Christmas spending plans already taking shape. But higher inflation has clouded that outlook, and a stronger spending intention does not necessarily mean households will have more room in their budgets once essential costs are covered.
Food costs are a growing pressure
Grocery spending is one clear pressure point. In October, 36 per cent of shoppers expected to spend more on groceries over the next three months, up from 28 per cent in September. That shift suggests more households are preparing for food bills to rise, leaving less discretionary money for other purchases.
The concern follows a sharper-than-expected increase in consumer price inflation. Prices rose 3.5 per cent in the year to September, compared with 3.1 per cent previously. The report linked the deterioration in consumer attitudes to inflation fears and expectations of higher interest rates. Those pressures can weigh on retail demand in different ways: rising prices increase the cost of necessities, while higher borrowing costs can make households more cautious about spending.
Food prices could add to the strain. Supermarket executives say energy and supply expenses remain difficult to contain, while industry figures have tipped food inflation to reach 6.4 per cent by July next year. That figure is a forecast, rather than a price increase already recorded. If food costs rise as projected, retailers may face a harder task persuading customers to spend on goods beyond the weekly shop.
Retailers also face pressure on their own cost base. BRC chief executive Helen Dickinson said businesses were contending with a “tsunami of costs”, including employer National Insurance Contributions and business rates. She argued that easing those expenses would give retailers more room to manage prices and, in turn, household costs.
Retail costs meet household budgets
Dickinson said retailers were already doing what they could to keep prices down, but described a 20 per cent increase in tax on the industry across two years as leaving companies with “no more room for manoeuvre”. Her argument is that higher operating expenses can narrow the options available to businesses: absorb the increase and accept lower margins, pass some of it on to customers, or reduce spending elsewhere.
Retail leaders have called for high street shops to be excluded from the highest business rates multiplier and for recent increases to employer National Insurance Contributions to be reversed. These are requests from the industry ahead of the Budget; the source does not say what measures will be taken. The outcome matters to retailers because staffing and property costs are significant parts of running shops, while any costs passed through to prices would meet consumers already worried about food bills.
Employment is another part of the retailers’ case. Companies say higher National Insurance Contributions, alongside minimum wage increases that outpace inflation, are making it harder to invest in jobs. Retailers have connected that constraint to efforts to address the number of young people who are not in education, employment or training. B&Q owner Kingfisher’s chief executive, Thierry Garnier, said the company’s work experience placements for young people “depends on what the Chancellor decides in this Budget”.
The figures point to a retail sector facing two linked tests: whether planned Christmas spending holds up, and whether household budgets can absorb further increases in essential costs. The rising spending reading offers some support for the near-term sales outlook, but the weaker confidence measures and growing grocery concerns make that support uncertain. The next key signals will be whether inflation eases, how food prices develop, and what cost pressures retailers face after the Budget.
