Sales had been expected to decline, by 0.5%, after a strong June in which sales climbed, due to the heavy rainfall during the month. But the fall was much worse than expected, suggesting that higher interest rates and continuing inflation are having a notable effect as well.
Last month was the sixth-wettest July in UK history.
ONS Deputy Director for Surveys and Economic Indicators Heather Bovill said: “Retail sales fell sharply in July as poor weather impacted most sectors.
“It was a particularly bad month for supermarkets as the summer washout combined with the increased cost of living meant sluggish sales for both clothing and food. Department store and household goods sales also dropped significantly.
“The wet weather did mean a good month for online retailing, as discounting plus consumers shopping from the comfort of their homes boosted sales.”
The decline will raise fears that the resilient-so-far UK economy could still slide into a recession before the year is over. GDP had held up strongly to the battering of repeated interest rate hikes in the first half of the year, and organisations from the bank of England to the IMF and the CBI all changed their projections to no longer predict a recession.
But the fall suggests that there is still a risk of GDP falling in the third and fourth quarter of the year, which would meet the technical definition of a recession: two consecutive quarters of decline.
Josh Graham, Co-Founder and Chief Marketing Officer at Airtime Rewards, said: “Today’s retail sales figures show that shoppers are prioritising financial resilience over spending, as rising interest rates prompt them to tighten their purse strings. Add to this the wet weather which dampened demand for summer clothing, and it’s hardly surprising we’ve seen retail figures slump. Our own data shows that spending in July was down 10%, with bars and offline clothing impacted most notably.
“Stubbornly high inflation and rising interest rates are testing consumers’ ability to spend, and retailers must brace themselves for scarcer spending. Having a clear value proposition that focuses on the wants and needs of customers, as well as a multi-channel approach, will be critical to attracting and retaining shoppers.”
Erin Brookes, European Retail and Consumer Lead at Alvarez & Marsal, said: “The slump in sales last month could become a trend if the High Street is not boosted by tourists in August or shopping for the new season in September. Retailers need to ensure they are managing stock levels as much as possible and looking ahead with caution as preparations for peak trading pick up pace.”