UK attention to retail: a meagre October douses retailers' hopes for golden quarter

December 12, 2017

Negative growth for UK retailers in October reversed the brief uplift that followed September’s back-to-school purchases. October, which marked the start of the critical three-month run up to Christmas, saw retail volumes contract by 0.3%. Fashion retailers were hardest struck, experiencing a 1.8% decline, albeit on a particularly strong October 2016. Value growth of 2.8% on the previous year was primarily driven by inflation.

Although mild autumnal weather allowed shoppers to push back purchases of scarves, hats, gloves, and boots, an increasingly harsh economic climate has started to bite. The half-term holiday failed to draw shoppers to the high street, evidenced by a footfall decline of 4%.

Consumer confidence has taken a hit as Brexit negotiations roll on. Meanwhile, wage growth remained sluggish. Consumers are holding out on spending, choosing to purchase second-hand products, and prioritising spending on experiences such as eating out. Credit card companies’ figures revealed that spending in bars, restaurants, and pubs remained resilient.1

The holidays lie on the horizon and with food prices are up 3.5%, the highest increase since September 2013, an expensive festive season could be in store. Unfortunately, large food bills are having a run-on effect for non-food retailers, forcing them to offer significant discounts to attract sales. The pressure to offer early discounts was felt by many retailers anxious to amend for slow October sales. This, coupled with increasingly price sensitive consumers’ tendency to delay purchases to benefit from promotions, resulted in the anticipation surrounding Black Friday and Cyber Monday being at the highest it has ever been.

All-in-all retailers face a difficult golden quarter. With the days and economic outlook darkening, retailers are increasingly in need of some Christmas cheer.



Unemployment remained at 4.3%, down from 5% in the three months to August last year. Levels of unemployment are at the lowest level they have been since 1975. However, low unemployment is failing to boost workers’ bargaining power to secure any significant increases in pay. Latest estimates show that average weekly earnings for employees in Great Britain in real terms fell by 0.3% compared with a year earlier. Wage rates are at the level they were in 2005, but living costs have risen due to inflation. With their real earnings in decline, consumers are facing the decision to either buy less or to borrow more.


Concern surrounding the level of household borrowing has reached new heights after the Bank of England released a statement that lenders could incur £30bn of losses on credit cards, personal loans and car finance if interest rates and unemployment rose sharply.2 Growth in consumer debt has stayed at around 8% year-on-year for the last 12 months. Credit levels rose to £205bn in October 2017, up 7.8% on the previous year. Credit cards and personal loans make up the bulk of the debt pile, but a lot of growth is being driven by new car financing. Many buyers are purchasing their vehicles via PCP financing packages which treat buying a car rather like opening a new mobile phone contract. Buyers have the option to “upgrade” their deal after a certain number of months. It transpires that 80% of PCP buyers are choosing to roll-over their contracts to a new vehicle, rather than pay-off the residual value of the car. The FCA has launched an investigation into the risk that is being placed on the lenders as well as the financing arms of manufacturers and dealers offering PCP.

All-in-all, the Bank of England has called for banks to tighten lending criteria and clamp down on overdrafts to curb household debt. The interest rate rise introduced in November supports this objective through increasing the cost of borrowing for consumers from 0.25% to 0.5%.


Footfall continues to decline in force across the UK as the half-term holiday failed to draw consumers back to the high street. Footfall fell 4% compared to October last year. The East of England and Northern Ireland were hardest struck, registering a 6% decline in visitors to the high street. UK retailers must adapt to the needs of a more price sensitive consumer to drive footfall back into their stores. Offering in-store experiences such as beauty bars, holding speaker events and introducing pop-ups, provides consumers with a reason to visit stores beyond a simple purchase objective. By stocking smaller ticket, luxury items retailers can exercise the “lipstick principle” to drive footfall without resorting to margin reducing promotions.3


House prices saw a slight pick-up in October with a modest 0.2% month-on-month increase.4 Annual house price growth of 2.5% still lies within the 2-4% range that has held since March. Speaking on the effect of the impending rate rise, Nationwide’s Chief Economist Robert Gardner forecasted the impact on UK households to be modest, provided labour market conditions do not weaken significantly. This is because the vast proportion of new mortgages were extended on fixed interest rates. For an average variable rate mortgage, an uplift of 0.25% would increase monthly payments by £15 to £665 (equivalent to £180 per year).

1    Financial Times, 16 November 2017
2    Bank of England
3    The lipstick principle refers to a tendency for consumers to spend on lower cost luxury items during hard economic times
4    Nationwide

Meet the Authors

Imara Csoti headshot

Imara Csoti

Senior Vice President, London