Reacting to: Retail sales fall faster than expected ahead of Budget (City A.M.) →
Retail sales fell faster than expected in September, and the sharper reaction from economists wasn't actually to the sales figure — it was to the confidence numbers released alongside it. The Office for National Statistics recorded a 0.4% fall in total retail sales, worse than the 0.1% drop City economists had forecast, while GfK's long-running confidence index had its biggest monthly collapse since the 2016 Brexit vote. Both land five days before Chancellor John Healey's first Budget. For any business that makes most of its year in the next ten weeks, this is the demand signal for exactly the period it can least afford to misjudge.
That timing matters more than the number itself. By late October, a retailer or hospitality business with a Christmas-weighted year has mostly finished the decisions that determine how the quarter goes: the stock is ordered, the extra staff are on the rota, and the rent and business rates fall due in December whether or not people walk through the door. A softer demand signal arriving now is the last point at which the plan for the next ten weeks can still be adjusted, before the costs behind it are fully locked in.
What the data actually shows
The ONS's retail sales release for September showed total sales down 0.4%, against a City forecast of a 0.1% fall — a bigger miss than expected. The comparison point moved too: August was revised up, from an initial estimate of 0.5% growth to 0.7%. The slowdown was concentrated in one part of the market. Non-food stores and online retailers saw volumes fall 0.4%, with firms reporting weaker footfall and customers cutting back on non-essential purchases. Automotive fuel was the only major category that still grew in volume over the month, despite rising prices at the pump — people need to fill the tank whatever it costs.
Running alongside the ONS release, GfK's consumer confidence index fell 11 points to -24 in September, which the firm's consumer insights director, Neil Bellamy, called "an extraordinary collapse" — the sharpest monthly fall in the index since the Brexit referendum in June 2016. Paul Dales, chief UK economist at Capital Economics, put the two together: "October's sharp fall in consumer confidence and the dip in retail sales volumes in September show that times are getting tougher for households just as the all-important festive period for retailers is just around the corner." Confidence falling faster than sales is usually the leading signal, describing what shoppers say they're about to do rather than what they already did last month.
Worked numbers: what a softer quarter actually costs
Take an illustrative example, with figures chosen to be realistic rather than drawn from any single real business. Say an independent shop budgets £40,000 of sales across November and December — a plausible slice of a smaller business's year, even though your own split will look different. A 3% miss against that plan, broadly in line with the scale of softening in this ONS data, is £1,200 of revenue that simply doesn't turn up. That £1,200 lands against costs already committed when the plan assumed £40,000, not £38,800: the Christmas stock bought in at, say, a 50% margin, meaning around £20,000 was spent to generate the planned £40,000, and the extra till staff already on the December rota. The shortfall doesn't reduce those costs; it reduces what's left over after them.
Fuel is a second, separate pressure, and one with a harder number behind it. City A.M. reports the average price of diesel in the UK reached a record high of £2.01 a litre in early October, driven by the spike in oil prices from the war between the US and Iran, with that pressure expected to continue into the final quarter. For a business running a single delivery van doing around 300 miles a week at 35 miles to the gallon, that's roughly 39 litres a week, or about £78 — just over £4,000 a year in fuel alone, before any other running cost is counted. Unlike the softer sales figures, nobody is proposing to fix this one at the Budget: fuel duty isn't part of this story, and the price pressure follows global oil markets, which the Chancellor has no direct lever over.
The Budget asks already on the table
City A.M. reports that retail bosses have urged the government to exclude high street shops from the highest business rates multiplier and to reverse recent increases to employer National Insurance contributions, directly tying these requests to the weaker sales and confidence data. Thierry Garnier, chief executive of Kingfisher — which owns B&Q — wrote in City A.M. that the company's provision of work experience placements for young people "depends on what the Chancellor decides in this Budget." Neither request has been granted, and nothing in this story confirms either will be.
It's worth being precise about what's already been decided and what's still being asked for, because the two get run together easily. A 20% business rates cut for pubs, clubs and live music venues, and a £4.3bn package aimed at limiting rate rises more broadly, were both announced back in July — our piece on how business rates relief is now allocated by sector covers what that already means and who it does and doesn't reach. What retail bosses are asking for now — multiplier exclusion for ordinary high street shops, and an NI reversal — is additional, and sits alongside the pressure other sectors have already put on record: our piece on what rising employer NI and minimum wage costs did to one hospitality business's numbers shows the scale of that cost inside a real set of accounts.
What it means for you, by situation
If your trading is weighted towards November and December, treat this data as a reason to revisit the plan now rather than in January. A confidence collapse of this size, arriving before the stock and staffing decisions become irreversible, is exactly the kind of signal worth re-running the cash flow forecast against, to see in advance which weeks of the quarter carry the most risk if footfall runs below last year's pattern.
If vehicles or deliveries are part of how you operate, the diesel price has already landed, independently of anything the Budget decides. Reviewing delivery charges or call-out pricing now, before the quarter gets busy, is more manageable than discovering in January that the margin has gone.
If you're hoping for business rates or National Insurance relief at this Budget, treat it as a bonus that might land on 28 October. Both are requests reported by City A.M., and whether either becomes policy will only be settled when Healey delivers the Budget.
What's still uncertain, and when we'll know
Two things are genuinely open. First, whether September's slowdown is the start of a trend or a one-month wobble won't be clear until the ONS publishes its October retail sales figures, typically around three weeks after the month ends. Second, whether the Budget on 28 October addresses either of the asks retailers have put on record — the business rates multiplier or employer NI — is entirely Chancellor Healey's decision, and City A.M. reports no indication either way beyond the requests themselves. Our piece on what's already confirmed for this tax year ahead of the Budget covers what you can rely on regardless of what the Budget adds on the day.
Two things to do this week
First, if the next ten weeks carry a disproportionate share of your year's trading, re-run the cash flow forecast against this softer confidence signal rather than against last year's plan — our cash flow and budgeting service is built exactly for stress-testing a plan like this before the costs behind it are locked in. Second, if fuel or delivery costs are a meaningful part of your cost base, check your own pricing against £2.01 a litre now, not in December once the margin has already gone.
Keeping half an eye on where a quarter's trading actually stands against the plan, rather than finding out in January, is exactly the kind of thing we help clients with every month. If that sounds useful, talk to us.