Fear that Wednesday's United Kingdom budget, which is likely to include tax increases, will disrupt an expected surge in sales over the Black Friday period and festive season, has seen British retailers report the sharpest drop in confidence in 17 years, according to a survey published on Tuesday.
Black Friday and the lead-up to Christmas are considered critical for the sector, offering opportunities for retailers to offset some of the financial pressures experienced during earlier parts of the year.
The Confederation of British Industry said its gauge of how retail sales compared with a year earlier worsened to -32 from -27 in October.
While CBI's gauge of expected sales for the month ahead improved to -24 from -39, a quarterly measure of firms' business sentiment for the next three months tumbled to -35 from -10 in August, marking the weakest reading since late 2008 when the global financial crisis peaked.
"Retailers continue to grapple with a long spell of weak demand, as households remain cautious around day-to-day spending," Alpesh Paleja, the CBI's deputy chief economist, said.
"With all eyes on the forthcoming budget, uncertainty in the run-up has meant that businesses are holding back on plans for investment and hiring.”
A measure of inflation in prices charged by retailers fell closer to its long-run average, slowing sharply from August.
Meanwhile, the sharp fall in UK retailer confidence is mirrored in UK consumer sentiment, which slipped in November, with households tightening the purse strings ahead of the budget and a crucial holiday season for retailers.
A closely-watched index of consumer confidence in the UK has fallen on every measure ahead of the Labour government’s budget.
Research company GfK said its overall confidence level fell two points in November to an index score of minus 19.
GfK’s five sub-indexes record public opinion about people’s personal financial situation, their propensity to make big purchases and the UK’s general economic situation — all dropped this month, compared with October.
A fall across all five measures suggests UK consumers are bracing for difficult news, with little in the current climate to lift expectations.
The continued erosion of confidence is evident in the forward-looking measures for both Personal Financial Situation and the General Economic Situation, which are each down by two points.
“The three-point drop in the Major Purchase Index is also troubling at this time of year, suggesting households are tightening their grip just as retailers move into a crucial trading period,” said Neil Bellamy, Consumer Insights Director at GfK, an NIQ Company.
“In such conditions, the Budget offers a timely chance to provide the clarity and reassurance that consumers are struggling to find on their own.”
Adding to evidence that British shoppers are feeling strained was a profit warning by JD Sports, which expects full-year profit to be at the lower end of expectations.
JD Sports, led by CEO Régis Schultz, said the company – which saw like-for-like sales drop 1.7% in the third quarter - was also hit by higher unemployment among its core demographic of 16- to 24-year-olds, as they pulled back on spending.
“There is nothing wrong with JD that a dose of economic confidence and a few strong product releases would not resolve,” Peel Hunt analyst Jonathan Pritchard said in a note.
“However, both feel some way off and forecast momentum remains negative.”
