UK Consumer Confidence has fallen nine points this month to -30 and takes the country back to where it was in July this year, according to GfK’s long-running Consumer Confidence Index.

“This sharp fall underlines that the cost-of-living crisis, and simply not having enough money to make-ends-meet, are still exerting acute pressure for many consumers,” says Joe Staton, GfK’s client strategy director.

The fierce headwinds of meeting accelerating costs to heat homes, filling petrol tanks, coping with surging mortgage and rental rates, a slowing jobs market and now the uncertainties posed by conflict in the Middle East, are all contributing to this growing unease, he explains.

GfK’s Consumer Confidence Barometer (CCB) has been providing a snapshot of how UK consumers feel on crucial economic topics every month for nearly 50 years. And its latest Index for October reveals that all five UK consumer confidence measures were down in comparison to last month.

This includes feelings on personal and financial situations over the next 12 months (down 6), general economic situations over the next year (down 8) and, crucially for businesses, the major purchase index which plunged 14 points.

The timing of this sharp drop in the major purchase index is a big concern for Retailers, as many do a huge chunk of their sales in the final quarter of the year/ run-up to Christmas, dubbed the ‘Golden Quarter.’

“The volatility we are seeing in consumer confidence is a sure sign of a depressed economic mood and there’s no immediate prospect of any improvement,” Staton notes. 

RETAIL SALES SLIDE

The news comes off the back of worse than expected September UK Retail Sales volume figures from the Office for National Statistics (ONS) too, which fell by 0.9% in September, compared to the same month last year.  

Clothing was hit particularly hard, with “unseasonably warm weather” and continuing cost-of-living pressures impacting sales.

And UK retail sales growth slowed in September, reports the latest BRC-KPMG Retail Sales Monitor.

GOLDEN QUARTER

The health of the retail sector is expected to continue its slow decline over the golden quarter, driven by consumer demand falling away, the latest assessment by KPMG/RetailNext Retail Think Tank (RTT) members also reveals.

The KPMG/RetailNext Retail Health Index (RHI) found that although consumers will want to celebrate Christmas, rising interest rates are starting to impact demand, with non-food retailers expected to find the final quarter especially challenging. 

Despite inflation falling, and wage inflation expected to rise above general inflation levels, the RTT believes that two years of cost-of-living survival is now having an impact on consumers’ ability and desire to spend, with demand levels expected to fall in the critical Christmas quarter. 

“Excess savings built up over Covid have now dwindled and have been eroded by inflation, and with the heating coming back on, many consumers will be thinking very carefully about how they spend their money,” predicts Paul Martin, KPMG’s UK head of retail.

“As a result, we are likely to see much more muted spending levels going forward, and despite costs being managed exceptionally well, the health of the industry is at the mercy of macro demand, which could very much take the shine off the golden quarter,” he adds.

But it’s not all bad news for the sector, with grocery retailers forecast to be the winners over the next three months, as food prices fall, and loyalty scheme promotions drive better value for customers. 

Consumers are expected to trade eating out over Christmas for more in-home entertaining and look to save money by choosing premium own label for seasonal indulgences as part of enjoying Christmas on a budget.

However, non-food retailers are set to have a more difficult final quarter, as consumers spend carefully, and promotions are expected to start much earlier in order to entice consumers to spend. 

HOW TO INCREASE SALES IN RETAIL?

Pure online retailers in particular, who have seen sales growth decline for two years, are expected to offer bigger discounts much earlier into the period, as they fight for every sale over high street players. 

Following the unseasonal weather, some non-food retailers will be sitting on excess stock, which could drive discounting further and bite into margins. With promotional activity in the sector set to rise over the Christmas quarter, the RTT expects a further fall in margins for retailers during Q4, which could be impacted further if excess stock remains unsold. 

FURTHER READING: Is Black Friday Worth The Hype?

The RTT’s predictions for slower consumer demand in the final quarter are supported by a poll of 2600 consumers by KPMG, which found that nearly four in ten (39%) would have a smaller budget to buy gifts this year, with just 4% of consumers surveyed claiming they would have more to spend on gifts this Christmas. 

A third of those polled (35%) also claimed they will be eating and drinking out less this Christmas. 

However, the one bright spot centred around the cost environment in the sector. The expected fall in consumer demand comes at a time when the industry has reached a more stable cost environment, with many retailers having seen the fruits of efficiency programmes put into place 18 months ago. 

RTT members felt that the cost environment for retailers during the golden quarter would remain neutral, with less supply chain disruption, stable rent, a reduced rates and freight environment and energy costs down on a year ago. 

But despite this, rising fuel prices and labour costs due to recruitment for extra Christmas staff could be the one blot on the horizon.

“Whilst it is reasonable to expect surges in demand around Halloween and possibly Black Friday, it is likely that there will be very little left over to smooth out the spikes,” says Gary Whittemore, Head of Sales, EMEA & APAC at RetailNext.

“Much like the last few months, retailers are facing a Christmas where they are competing for a shrinking share of wallet, driven by promotions that will cut into already stretched margins,” he adds.

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