Retail sales rise unexpectedly despite Budget tax fears

Retail sales rose unexpectedly in September, suggesting households are still splashing the cash despite fears about tax rises in the Budget.

According to figures released by the Office for National Statistics (ONS), retail sales volumes rose 0.3 per cent in September. Economists had expected sales volumes to fall 0.4 per cent.

This brought the annual increase to 3.9 per cent, the largest annual rise since February 2022.

“Retail sales grew in September as tech stores reported a notable rise in sales,” ONS senior statistician Hannah Finselbach said.

“These were only partially offset by a poor month for supermarkets, where retailers said bad weather and households continuing to cut back on luxury food items hit sales,” she continued.

The strongest sub-sector growth was from ‘other non-food stories’, which rose by 5.5 per cent in September.

Computer and telecommunications retailers had the strongest contribution, which some economists suggested was due to back-to-school spending.

Supermarket sales volumes, meanwhile, fell 2.4 per cent. Comments from retailers pointed to unseasonably poor weather and consumers continuing to cut back on luxury food items.

Nevertheless, the data suggests that consumers are still willing to spend despite fears about possible tax rises in the Budget.

Chancellor Rachel Reeves is reportedly set to hike taxes and cut spending by £40bn as she seeks to put the UK’s public finances on firmer ground.

Surveys of consumer sentiment have taken a hit in recent weeks as households prepare, but this morning’s figures suggest consumers have not changed behaviour just yet.

“While households may be concerned about possible tax rises in the Budget on 30th October, those fears are not feeding through to their spending decisions yet,” Alex Kerr, UK economist at Capital Economics, said.

Kerr argued that retail spending would likely continue to increase as households see improving real incomes, even if there were tax rises in the Budget.

Source: ONS

The figures continue an improving trend for retail sales, with sales growth in the quarter rising 1.9 per cent. This was the joint largest increase – shared with the quarter to March – since July 2021.

This quarterly rise was across all main sectors, the ONS said. When comparing with the same period last year, there was a 2.6 per cent rise, the largest since March 2022.

Neil Birrell, chief investment officer at Premier Miton Investors, said the figures suggests “the economy is more robust than was thought”.