UK Retailers to Trim Jobs and Costs as Consumer Spending Slumps Amid Tight Rates

British retail companies are likely to cut to axe jobs and trim spending, as the consumers are facing spending crisis amid signs that the economy is likely to slump.

Retail activity in the country has dropped for a fourth straight month in August and the sentiment is at its lowest level since March 2021, the Confederation of British Industry (CBI) said. According to it, retailers are on the course to reducing investment in the next 12 months. .

High Interest Rates

According to the premier business organization, high interest rates have left a huge impact on household budgets. “Retail sales in August fell at their quickest pace in over two years, culminating a summer that many retailers would rather forget. Against a backdrop of rising interest rates and weak demand, retailers foresee cuts to investment over the next year, while employment is expected to fall again next month,” said Martin Sartorius, principal economist at the CBI.

The S&P Global/CIPS composite Purchasing Managers’ Index (PMI) tumbled in August, suggesting that the British economic output was underwhelming during the three months to the end of September.

Factory Activity

”August has been a washout for the high street as shoppers have turned increasingly cautious, with households’ budgets facing a big squeeze. The CBI’s snapshot of the retail scene shows darkening skies … Already, the Office for National Statistics retail sales reading for July showed a sharper drop than expected. Certainly, the wet weather hasn’t been helping, but positive sentiment is not just being drowned out by the rain, but by the chill factor of higher interest rates,” said Hargreaves Lansdown analyst Susannah Streeter, according to Reuters.

A key survey assessing factory activity showed earlier this week that the British economy could continue to shrink and the risks of a recession are high. The S&P Global/CIPS composite Purchasing Managers’ Index (PMI) tumbled to 47.9 in August from 50.8 in July, according to a preliminary estimate which was below all forecasts in a Reuters poll of economists.

More Rate Hikes

The Bank of England interest has raised interest rates as many as 14 times since December 2021. A new poll of economists by Reuters showed this week that the BoE policymakers are likely to raise the rates once again in September, bringing it up probably as high as 5.5 percent. The British central bank has been fighting high inflation, which peaked at 11.1 percent in October 2022. Inflation eased to 6.8 percent in July but it is more than three times higher than the BoE goal of 2 percent.