UK Retail Sales Fall 0.4% in September Despite Third-Quarter Growth
Key Facts
UK retail sales volumes fell 0.4% in September, signaling weaker monthly spending ahead of the Bank of England’s next decision. The Office for National Statistics said transport, particularly motor fuels, was the largest upward contributor to annual consumer price inflation. The consumer price index rose 3.5% in the 12 months to September, compared with 3.1% in August. The reading puts the sales decline at a time of rising living costs, as the central bank faces conflicting pressures from weak demand and persistent inflation. A separate measure showed sales volumes rose in the three months to September compared with the previous three months, offsetting the decline recorded in the final month of the quarter.
Price data reflect pressures extending beyond the headline index. The Consumer Prices Index including owner occupiers’ housing costs rose to 3.6% in the 12 months to September, from 3.3% in August. Core inflation for this index was 3.1%, while goods inflation reached 3.2% and services inflation 3.9%. The differing rates indicate that price pressures extended to services and goods, alongside the increase in the headline index. Transport, particularly motor fuels, was the largest upward contributor to the annual change in both the consumer price and the Consumer Prices Index including owner occupiers’ housing costs, the statistics office said.
Motor fuel prices rose 30% year on year through September, after an annual increase of 23% in August, according to the Associated Press. The acceleration in fuel prices formed part of the inflation backdrop facing households, as their purchase volumes fell in September. The Bank of England held its interest rate at 3.75% at its September meeting, but the decision was not unanimous. 6 members voted to hold rates, while 3 preferred a 0.25 percentage point increase to 4%. The vote highlights a split within the Monetary Policy Committee over the appropriate response to a combination of price pressures and weak activity.
In an update to the Bank of England staff forecasts, the meeting minutes indicated that inflation could reach slightly more than 4% in early 2027. The Associated Press reported that another estimate puts it at about 4% in the first quarter of next year, compared with 3.1% at the time of the decision. These forecasts remain part of the backdrop to the next decision, as retail data show a monthly decline even as volumes grew in the three months to September. The Monetary Policy Committee is scheduled to meet next on 5 November 2026, when it will publish the meeting summary and minutes and the Monetary Policy Report. Most economists expect the bank to raise its interest rate to 4% after the meeting, according to the Associated Press.
British consumer confidence fell 11 points to -24 in October, according to data reported by Reuters via MarketScreener. The previous reading was -13 in September, which the report described as the highest since August 2024. October’s monthly decline was the biggest since April 2020. The confidence reading adds another sign of weak sentiment as sales volumes contracted in September, while inflation remained above its August level. In markets, the FTSE 100 closed at 10,725.03 points on 22 October, according to EL7 data.