Retail sales see biggest monthly fall since January after Euro boost faded and self-isolation rose
Retail suffered a washout last month as the end of the Euro 2020 tournament combined with wet weather were blamed for a sharp fall in sales.
Experts also pointed to the likely impact of rising COVID-19 case numbers prompting people to self-isolate as well as the global chip shortages holding back computer and phone supply.
The Office for National Statistics (ONS) said retail sales volumes in July were 2.5% down from the previous month, taking them to the lowest level since shops reopened in April after the lockdown.
Euro 2020 had provided a boost to sales in June
It was the biggest monthly decline in retail sales since January this year and, outside pandemic lockdowns, the largest since 2010.
The performance fell well short of economists’ expectations for a small rise in sales – and came after food store sales were boosted in June by the Euros.
Grocery retailers were also not helped by the further easing of pandemic restrictions, which opened up more places for consumers to spend their money.
The ONS added that heavy rainfall saw road usage fall, prompting lower fuel demand.
Clothing retailers, already under pressure, suffered a further decline while second-hand, computer and telecoms equipment shops also saw a slide.
Despite the setback, retail sales are still ahead of pre-pandemic levels.
Chip shortages may also have taken their toll
The proportion of sales made online climbed to 27.9% in July from 27.1% in June, compared to a pre-pandemic level of 19.8% in February last year.
But it was lower than the levels of more than 30% seen during lockdowns.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “July’s sharp decline in retail sales can be blamed largely on rising COVID-19 cases, which prompted some households to steer clear of shops and forced others into self-isolation.”
Martin Beck, senior economic adviser to the EY ITEM Club, also said the impact of consumers being ordered to stay at home was a factor.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “As anyone who decided to splash out on a new games console for the holidays knows, shortages of chips and hauliers kept a lid on sales of these too.
“It’s one reason why sales of new computers, telecoms and electrical goods fell back.”
One of the world’s largest investment firms has waded into the fight over the future of Thames Water, the water utility which is racing to stay afloat.
Sky News has learnt that KKR is in talks with Thames Water and its advisers about participating in a £3bn share sale which forms part of a wider recapitalisation plan.
City sources said this weekend that KKR, which has more than $550bn of assets under management, was among a handful of parties which had accessed a data room for potential investors.
Rothschild, the investment bank, is running a process to raise around £3bn from the sale of an equity stake in Thames Water, which is grappling with a debt mountain of as much as £19bn.
Other investors which have expressed interest in acquiring newly issued shares in the water company include Carlyle and Castle Water, the latter of which is controlled by Graham Edwards, the Conservative Party treasurer.
Global Infrastructure Partners, which is owned by BlackRock, Brookfield and Isquared are also reported to have lodged an interest, although sources said that the latter two were unlikely to play any further role in the process.
The crisis at Thames Water is presenting Sir Keir Starmer’s administration with a challenge as the debt-laden company attempts to avert temporary nationalisation.
Insiders said that KKR was “a serious player” in the equity process being run by Thames Water, although its outcome hinges on a final determination by Ofwat, the industry regulator, which is due by January at the latest.
Thames Water – and other suppliers across Britain – wants to hike bills and is demanding leniency from Ofwat on fines for past transgressions.
One obstacle to KKR buying a big stake in Thames Water, which has more than 15m customers, may be its 25% holding in Northumbrian Water.
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Under Ofwat’s mergers regime, the Competition and Markets Authority would need to review the deal, although there would not be an automatic prohibition.
The share sale process is being run in parallel to an attempt to raise up to £3bn in debt financing from hedge funds and other investors.
A battle has broken out between the holders of Thames Water’s class A bonds, which account for the bulk of its borrowings, and its riskier class B debt.
Both sets of bondholders have submitted proposals to the company, with the class A’s arguing that theirs is more certain and the class B’s arguing that theirs will save the company £380m or more in fees and interest over a 12-month period.
Thames Water has already endorsed the class A group’s offer, with an initial £1.5bn of funding to be delivered immediately.
The class A bondholders are now trying to secure backing for their proposal within the next fortnight.
Their group, which includes the American hedge funds Elliott Advisers and Silverpoint, would earn in the region of £650m during the first year of the financing.
One area of controversy is likely to be any incentive plan for Thames Water bosses, led by chief executive Chris Weston, as part of a deal to give the company a stay of execution.
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Last month, the environment secretary, Steve Reed, established an independent review of the industry that will look at far-reaching reforms.
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It was unclear this weekend which of KKR’s funds was participating in the Thames Water equity-raise.
The firm owns John Laing, an infrastructure investor, which it took private in 2021.
It has also owned South Staffordshire, another water company, selling its 75% interest in 2018.
KKR declined to comment.
The business secretary will next week hold talks with dozens of private sector bosses as the government contends with a significant corporate backlash to Labour’s first fiscal event in nearly 15 years.
Sky News has learnt that executives have been invited to join a conference call on Monday with Jonathan Reynolds, in what will represent his first meaningful engagement with employers since Wednesday’s budget statement.
Rachel Reeves, the chancellor, unsettled financial markets with plans for billions of pounds in extra borrowing, and unnerved business leaders by saying she would raise an additional £25bn annually by hiking their national insurance contributions.
An increase in employer NICs had been trailed by officials in advance of the budget, but the lowering of the threshold to just £5,000 has triggered forecasts of a wave of redundancies and even insolvencies across labour-intensive industries.
Sectors such as retail and hospitality, which employ substantial numbers of part-time workers, have been particularly vocal in their condemnation of the move.
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On Friday, the Financial Times published comments made by the chief executive of Barclays in which he defended Ms Reeves.
“I think they’ve done an admirable job of balancing spending, borrowing and taxation in order to drive the fundamental objective of growth,” CS Venkatakrishnan said.
His was a rare voice among prominent business figures in backing the chancellor, however, with many questioning whether the government had a meaningful plan to grow the economy.
Mr Reynolds held a similar call with business leaders within days of general election victory, and over 100 bosses are understood to have been invited to Monday’s discussion.
A spokesman for the Department for Business and Trade declined to comment ahead of Monday’s call.
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