The pound held on its gains and hit a fresh one-week high against the dollar. The figures released by the Office for National Statistics showed that retail sales increased by 0.8% in October and were 5.8% higher than February 2020 levels. The rebound in retail sales strengthens the case for an interest rate hike in December by the Bank of England.

The retail sales data is in line with the rise in GfK consumer confidence. Both reports are encouraging and demonstrate that the UK economy is on the right track.

UK retail sales

Retail sales rose more than expected as consumers indulged in an early Christmas spending on toys and clothes. Retail sales rose for the first time in six months, with a 4.2% surge in spending at department stores, clothing outlets, sports equipment stores, and second-hand shops.

The ONS explained that clothing stores reported a 6.2% rise in October and the most common items bought were toys, clothes, shoes and accessories, helping bring sales close to their pre-pandemic level. More particularly, non-food stores’ sales increased by 4.2% in October 2021, with clothing stores sales only 0.5% below February 2020 levels. Automotive fuel sales fell by 6.4% in October 2021 while food store sales fell by 0.3% in October 2021. The proportion of retail sales online fell to 27.3% in October but was still higher than those of February 2020.

The ONS also reported that there was a backlash to fast fashion, as more consumers turned towards second-hand clothing. With household budgets squeezed, more people preferred charity shops for financial reasons.

Shortage fears boosted spending in October

Halloween and early Christmas shopping has helped boost spending. Helen Dickinson, chief executive of the British Retail Consortium said that retailers were relieved by the improvement in sales. Online sales remained above pre-pandemic levels while Halloween helped to boost spending further with chocolates and children’s costumes’ sales.

However, supply chain problems remain while higher prices and energy bills will put more pressure on households.

UK consumer confidence

Consumer confidence across the UK has also risen more than expected. The UK consumer confidence index, which tracks how consumers feel about their finances and the economy, rose 3 points to minus 14 in November, according to research company GfK. While consumers face rising prices and are not as confident about their personal finances, they were willing to buy expensive items. Joe Staton, Client Strategy Director at GfK, explained that headline consumer sentiment was higher despite rising inflation and a growing cost-of-living squeeze. He expressed his concerns though, as he highlighted that 2022 would be a tough year, despite the rise in both physical and virtual retail sales that showed that consumers were ready to return to normality.

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