Retail sales in reverse as hospitality’s return hits grocery demand
A sharp fall in demand for groceries, as pubs and restaurants reopened to indoor customers, has driven a decline in retail sales volumes.
The Office for National Statistics charted a surprise 1.4% fall in retail sales between April and May.
Economists had predicted growth of 1.6% on the back of a 9% surge the previous month following an easing of COVID-19 restrictions that released pent-up demand for goods on the high street.
The fall in grocery volumes was backed up by separate figures from Tesco, the UK’s largest supermarket chain, which noted a decline in sales for meals at home during April and May in its first quarter results statement.
Tesco said it enjoyed a ‘strong performance’ overall in the three months to 29 May
The retailer, which like its rivals has been among those shielded from pandemic sales pain, still reported like-for-like UK sales growth of 0.5% over the period against the tough comparison of the same three months to May in 2020.
Commenting on the wider performance for the retail sector as a whole, ONS director of economic statistics, Darren Morgan, said: “
“Following a sharp increase last month coinciding with post-lockdown reopening, retail sales dipped slightly in May.
“However, they remain well above both their pre-pandemic levels and those seen in March before shops reopened.
“Food stores sales suffered as feedback suggested the reopening of hospitality meant consumers took advantage of eating out instead.
“Household goods stores and garden centres fared well as people spent money on improving their gardens in anticipation of the summer and the lifting of restrictions on outdoor gatherings.
“As customers returned to physical stores, online sales fell in May for the third consecutive month, but remain nearly 60% higher than the level seen in February 2020.”
In Tesco’s case, it reported revenue of £12.4bn – a rise of 1.3% on a like-for-like basis compared to the first quarter last year – and said it represented growth of 8.7% by the same measure on March-May 2019.
It reported a rising contribution from its Booker wholesale operation – thanks to hospitality reopening – and said a sales decline in Ireland reflected a strong comparison with a year ago as the country entered lockdown rather than any Brexit-related hit.
Tesco boss Ken Murphy
Chief executive Ken Murphy told investors: “Our profit guidance from April remains unchanged.
“While the market outlook remains uncertain, I’m pleased with the strong start we’ve made to the year and continue to be excited about the many opportunities we have to create value over the longer term.”
A note to clients by Jefferies Equity Research said of the performance: “Resilient UK industry grocery sales and notable improvements at Booker have helped Tesco enjoy two-year stacked sales growth accelerating from the already strong levels seen at the end of 20/21.
“Despite the lack of formal guidance upgrade in this sales update, the upbeat start to the year suggests that guide for 21/22 retail profits similar to 19/20 could be bettered as the year progresses.”
The cyber attack on Jaguar Land Rover (JLR), which halted production for nearly six weeks at its sites, cost the company roughly £200m, it has been revealed.
Latest accounts released on Friday showed “cyber-related costs” were £196m, which does not include the fall in sales.
Profits took a nose dive, falling from nearly £400m (£398m) a year ago to a loss of £485m in the three months to the end of September.
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Revenues dropped nearly 25% and the effects may continue as the manufacturing halt could slow sales in the final three months of the year, executives said.
The impact of the shutdown also hit factories across the car-making supply chain.
Slowing the UK economy
The production pause was a large contributor to a contraction in UK economic growth in September, official figures showed.
Had car output not fallen 28.6%, the UK economy would have grown by 0.1% during the month. Instead, it fell by 0.1%.
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How cyber attack ‘effectively hacked GDP’
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Reacting to JLR’s impact on the GDP contraction, its chief financial officer, Richard Molyneux, said it was “interesting to hear” and it “goes to reinforce” that JLR is really important in the UK economy.
The company, he said, is the “biggest exporter of goods in the entire country” and the effect on GDP “is a reflection of the success JLR has had in past years”.
Recovery
The company said operations were “pretty much back running as normal” and plants were “at or approaching capacity”.
Production of all luxury vehicles resumed.
Investigations are underway into the attack, with law enforcement in “many jurisdictions” involved, the company said.
When asked about the cause of the hack and the hackers, JLR said it was not in a position to answer questions due to the live investigation.
A run of attacks
The manufacturer was just one of a number of major companies to be seriously impacted by cyber criminals in recent months.
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Are we in a cyber attack ‘epidemic’?
High street retailer Marks and Spencer estimated the cost of its IT outage was roughly £136m. The sum only covers the cost of immediate incident systems response and recovery, as well as specialist legal and professional services support.
The Co-Op and Harrods also suffered service disruption caused by cyber attacks.
Four people were arrested by police investigating the incidents.
Sir Keir Starmer and Rachel Reeves have scrapped plans to break their manifesto pledge and raise income tax rates in a massive U-turn less than two weeks from the budget.
The decision, first reported in the Financial Times, comes after a bruising few days which has brought about a change of heart in Downing Street.
Read more: How No 10 plunged itself into crisis
I understand Downing Street has backed down amid fears about the backlash from disgruntled MPs and voters.
The Treasury and Number 10 declined to comment.
The decision is a massive about-turn. In a news conference last week, the chancellor appeared to pave the way for manifesto-breaking tax rises in the budget on 26 November.
She spoke of difficult choices and insisted she could neither increase borrowing nor cut spending in order to stabilise the economy, telling the public “everyone has to play their part”.
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‘Aren’t you making a mockery of voters?’
The decision to backtrack was communicated to the Office for Budget Responsibility on Wednesday in a submission of “major measures”, according to the Financial Times.
The chancellor will now have to fill an estimated £30bn black hole with a series of narrower tax-raising measures and is also expected to freeze income tax thresholds for another two years beyond 2028, which should raise about £8bn.
Tory shadow business secretary Andrew Griffith said: “We’ve had the longest ever run-up to a budget, damaging the economy with uncertainty, and yet – with just days to go – it is clear there is chaos in No 10 and No 11.”
How did we get here?
For weeks, the government has been working up options to break the manifesto pledge not to raise income tax, national insurance or VAT on working people.
I was told only this week the option being worked up was to do a combination of tax rises and action on the two-child benefit cap in order for the prime minister to be able to argue that in breaking his manifesto pledges, he is trying his hardest to protect the poorest in society and those “working people” he has spoken of so endlessly.
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Ed Conway on the chancellor’s options
But days ago, officials and ministers were working on a proposal to lift the basic rate of income tax – perhaps by 2p – and then simultaneously cut national insurance contributions for those on the basic rate of income tax (those who earn up to £50,000 a year).
That way the chancellor can raise several billion in tax from those with the “broadest shoulders” – higher-rate taxpayers and pensioners or landlords, while also trying to protect “working people” earning salaries under £50,000 a year.
The chancellor was also going to take action on the two-child benefit cap in response to growing demand from the party to take action on child poverty. It is unclear whether those plans will now be shelved given the U-turn on income tax.
A rough week for the PM
The change of plan comes after the prime minister found himself engulfed in a leadership crisis after his allies warned rivals that he would fight any attempted post-budget coup.
It triggered a briefing war between Wes Streeting and anonymous Starmer allies attacking the health secretary as the chief traitor.
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The prime minister has since apologised to Mr Streeting, who I am told does not want to press for sackings in No 10 in the wake of the briefings against him.
But the saga has further damaged Sir Keir and increased concerns among MPs about his suitability to lead Labour into the next general election.
Insiders clearly concluded that the ill mood in the party, coupled with the recent hits to the PM’s political capital, makes manifesto-breaking tax rises simply too risky right now.
But it also adds to a sense of chaos, given the chancellor publicly pitch-rolled tax rises in last week’s news conference.
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