Retail sales in the UK last month were disappointing as consumers reined in their spending after overspending on Christmas.

Retail sales in the UK last month were disappointing as consumers reined in their spending after overspending on Christmas celebrations due to increasing household expenses.

According to a survey released on Tuesday by the British Retail Consortium, and consulting firm KPMG, total retail sales increased by 4.2% year over year in January, which is down from 11.9% growth in the prior year and roughly half the rate in December. Due to high inflation, the increase in sales really masks a far bigger decline in volume as consumers receive less for their money.

As retailers work to protect customers from the full effect of price increases, the biggest inflation in decades is having a negative impact on their profit margins. Many retailers reported better-than-expected holiday sales, but now that interest rates are rising, people are struggling with rising household expenses and more costly mortgages, leaving less money available for shopping.

The volume of grocery sales declined by about 7% in January, the largest drop in the previous nine months, according to a NielsenIQ study. While sales of frozen products increased, consumers bought fewer fresh vegetables, meat, and poultry.

Compared to the end of 2022, when 54% of UK households believed they would be impacted by the cost-of-living problem, over 70% now believe they will.

According to the BRC data, consumers selected more affordable big-ticket products while avoiding the premium category and also chose energy-efficient equipment like air fryers to assist reduce their expenditures. Men's clothes and shoes were the two strongest categories in clothing.

Strict Spending

Hit hardest were online purchases, with non-food web sales down 3.6% in January despite a rebound in brick-and-mortar sales following the pandemic. In the lead up to Christmas, online retailers also suffered as sales dropped at fast fashion chains such as Asos and Boohoo Group. Meanwhile, an online nutrition and cosmetics company, THG, lowered its profit forecast.

Paul Martin, UK head of retail at KPMG, said: "Consumers have started the year with a tight check on spending as they confront another time of rising expenses."

The mixture of declining customer confidence and increased input prices is becoming too much for some firms. Since Paperchase filed for bankruptcy last week and Tesco intervened to purchase the trademark and intellectual property, the stationery business is set to liquidate about 100 outlets in the UK.

It comes after the failures of furniture shop Made.com and fashion brand Joules, both of which Next acquired.

(Bloomberg.com, BBCnews.co.uk, BRC.org.uk)