UK consumers cautiously shop more after pre-budget slump

By William Schomberg

LONDON (Reuters) -British retail sales rose by a weaker-than-expected 0.2% in November, according to official data which suggested consumers had overcome their worries about the new government’s first budget but added to signs of only slow momentum in the economy.

A Reuters poll of economists had forecast a monthly increase of 0.5% in sales volumes after a drop of 0.7% in October in the run-up to finance minister Rachel Reeves’ tax and spending plan.

The monthly rise in sales was the first since August. But over the three months to November, volumes were up by only 0.3%, the weakest performance since the three months to June, the Office for National Statistics said on Friday.

Previously released official data has shown that Britain’s economy contracted in September and October, the first back-to-back shrinkage since the COVID-19 pandemic.

Much of the blame for the slowdown has been pinned on worries about Reeves’ budget on Oct. 30 which ended up piling tax increases on employers rather than consumers.

Surveys have shown a hit to companies’ hiring plans since she announced 25 billion pounds ($31.3 billion) of higher social security contributions for firms.

The Bank of England on Thursday said the economy would show zero growth in the last three months of 2024 but it did not cut interest rates due to concerns about stubborn inflation pressure.

“Overall, against a backdrop of recent weak activity data, today’s release could have been worse,” Alex Kerr, an economist with consultancy Capital Economics.

“As real incomes continue to grow and consumer confidence improves next year, we think the retail sector will contribute to an acceleration in consumer spending growth.”

Sterling was little changed against the U.S. dollar immediately after the data.

For the first time in three months, food store sales rose, the ONS said.

Britain’s biggest supermarket chains Tesco and Sainsbury’s have forecast strong Christmas sales.

But clothing stores suffered again with volumes dropping by 2.6% from October.

Sportswear and fashion groups JD Sports and Frasers and discounter Poundland have all cautioned on the outlook. On Wednesday footwear retailer Shoe Zone issued a profit warning, highlighting “very challenging trading conditions” in the first half of December.

The ONS said its November figures had been adjusted to account for the Black Friday discounting season mostly falling outside its reporting period but some retailers reported that sales began earlier.

School half-term holidays in England and Wales unusually fell in November this year, not October, but the impact was not adjusted for in the data.

($1 = 0.7999 pounds)

(Writing by William Schomberg; additional reporting by James Davey; Editing by Kate Holton and Hugh Lawson)