UK consumers are ramping up spending ahead of Christmas – but the cost of groceries will hurt
UK businesses are gearing up for a bumper festive season as consumers are expected to ramp up spending in the coming weeks.
New data from the British Retail Consortium’s Consumer Sentiment Monitor shows that the state of the economy increased from -36 to -35 in September. At the same time, the personal financial situation index worsened to -11 in October from -7 in September.
Personal spending on retail rose to +14 in October from +5 in September, while the index for personal spending overall climbed to +8 in October from +14 in September.
“With Christmas now around the corner, expectations of spending, particularly on retail goods, rose sharply, with a corresponding drop in expected savings,” said Helen Dickinson, Chief Executive of the British Retail Consortium.
“This effect was pronounced among Millennials and Gen X, the generations most likely to have children living at home. Worries about the cost of Christmas, coupled with concerns about potential tax rises in the upcoming Budget are likely to have contributed to the drop in sentiment around personal finances, which fell into double digits for the first time since May.”
While the prospect of Christmas may have boosted expectations of grocery spending, the general rise in food prices has meant many families are struggling with the rising cost of living, Dickinson said.
“Retailers are doing what they can to limit price rises, but high costs from the last Budget, including increased employment and packaging taxes, are still filtering through into inflation.
“The Budget is an important opportunity to relieve some of these cost pressures particularly the disproportionate burden of business rates on the retail industry,” she said.
Rising inflation
Headline inflation remained unchanged last month, as an easing of food price rises was countered by an increase in transport inflation, notably air fares.
Food inflation is expected to remain high into 2026 as inflationary pressures from the last Budget continue to filter through, something now being seen in the price of clothing and footwear.
With the cost of the weekly shop still significantly higher than last year and the prospect of another tax-raising Budget next month, today’s figures are unlikely to raise consumer spirits.
Nonetheless, consumers will have been happy to see the price of key staples such as rice, bread, and cereal fall on the month.
“With the IMF warning that UK inflation will be the highest in the G7, the Chancellor must use the upcoming Budget to tackle rising prices head on,” said Dr Kris Hamer (Director of Insight at the British Retail Consortium).
“Retailers, already operating on tight margins, have been hit with £7 billion in additional taxes this year alone – costs they simply can’t absorb. The Government must use what levers it has to hold back the rising tide of inflation. Reform of business rates – delivering a meaningful cut for retailers with no shop paying more – would drive and help deliver better value for customers.”
