UK consumers are facing an almost unprecedented perfect storm of issues driving up inflation and restricting public confidence in the economy.

Shipping costs are at their highest levels in 10 years, while vacancies in transport and storage stand at their highest in 20 years. Combine these issues with wider Brexit red tape and UK retailers are struggling to get products on to shelves.

The Confederation of British Industry (CBI) found in August retail stock levels were down 21% compared with expected sales – the lowest levels since the early 1980s.

This was despite buoyant consumer demand, with the volume of orders expected to be placed at a five-year high. 

Kingfisher chief executive Thierry Garnier says the retailer has seen “some inflation on raw materials” over the past six months. “It has been the case every month since January, especially in the UK against B&Q and Screwfix’s peers. 

“We have sourcing teams all over the world so we can see early signals of inflation and we actively engaged with suppliers many months ago. We decided to buy additional container capacity to deal with the volume and we are in a relatively good place.”

Numerous grocery leaders including Iceland’s Richard Walker and the Co-op’s Steve Murrells have also warned about availability issues and rising prices heading into Christmas

Consumers are beginning to notice the problems at the shelf edge. Data from Retail Economics found that 67% of 2,000 consumers have seen their household spending on food rising per week. 

 

By contrast, the majority of consumers still aren’t noticing availability issues at local supermarkets, although that number is on the rise.

In September, 31% of consumers said they had experienced difficulty buying something they needed, even if 14% subsequently found what they needed in the end. 

The data also found that consumers are beginning to feel the pain as inflation jumped to 3% in August, while the Bank of England said today that the growing energy crisis would push inflation above 4% by the end of the year.

These high levels of inflation look set to continue, with the OECD warning inflation in the UK is expected to still be running at 3% by the end of 2022, well ahead of the likes of the US, France and Germany.

Retail Economics data shows that 54% of consumers are either concerned or very concerned about rising inflation. There is also a growing concern among consumers, despite government assurances, about the possibility of Covid-19-related restrictions returning over the winter. 

 

 

However, late last week, things got even worse. Soaring natural gas prices really began to bite as it emerged that CF Industries, the UK’s largest producer of CO2, had stopped production on its two main sites. 

A shortage of carbon dioxide, which is used throughout the food production and supply chains for everything from stunning livestock prior to slaughter through to carbonating drinks, sparked dire warnings of imminent shortages of everything from Christmas turkey to cucumbers

It also added to the sense that rampant inflation is going to hit consumers particularly hard towards the year’s end. 

Concerns for Christmas

Yet, even with the many varied issues discussed above, consumer spending continues to remain relatively buoyant. The most recent Asda Income Tracker found that family spending power was up £23 a week year on year in August, a 10.5% annual increase. 

However, Asda noted there was a growing gap between richer and poorer households in terms of spending power. In August, households in the lowest income quintile saw income growth of just 4.5%, versus 5.9% in the highest income quintile.  

 

 

This split is only likely to grow, with the furlough scheme set to come to an end on September 30, 2021. The government is also refusing to row back on plans to cut the £20-a-week Universal Credit uplift it introduced last year. 

All in all, it’s no surprise that consumers are more cautious about spending their money coming into the all-important golden quarter. 

Exclusive data from 3Gem, commissioned by Retail Week, found that 65% of consumers are reducing their spending, while 72% either agree or strongly agree that they need to be more careful with their spending. 

 

 

Over the next six months, 68% of consumers expect to put money into savings and investments, with 21% of this figure planning to put more of their money into savings.

After the struggles retail has faced over the past 17 months or so of the pandemic, the sector’s hopes for a happier Christmas appear to hinge increasingly on issues outside of its control.