Consumer confidence hit a record low after dropping two points to minus-40 points in May, according Growth from Knowledge (GfK).

The GfK Consumer Confidence Barometer recorded its lowest score since records began in 1974, exceeding reports from the heights of the 2008 financial crash at minus-39 points, along with the effects of Brexit and the Covid-19 pandemic.

The report follows the lowest unemployment rate in 50 years, alongside 40-year record high inflation of 9.1% driven by skyrocketing food and fuel costs.

GfK confirmed consumer pessimism was strongest in depressed sub-measures on the general economy at minus-63 for the past year and minus-56 for the coming year.

In addition, the Major Purchase Index slid consecutively month-on-month for the last six months and is currently at minus-35 as a result of gloomy retail sales reports.

However, the sub-index for personal financial situation over the next 12 months rose by one point to minus-25.

Retail sales drop

The news comes in light of the latest retail sales volumes, which dropped by 0.5% in May after a 0.4% rise in April.

The Office of National Statistics (ONS) announced a 1.3% fall in sales volumes in the past three months against the three months before, continuing the downward trend from summer 2021.

The organisation reported the slide in sales volumes was linked to reduced spending in food stores, which fell by 1.6% on the back of rising food prices and the devastating cost of living crisis.

“The latest retail sales figures won’t tell anybody anything they don’t already know, but they do provide an interesting snapshot into how consumers are wrestling with inflation,” said AJ Bell financial analyst Danni Hewson.

“Quite simply they’re buying less of pretty much everything, from food to furniture. At supermarket checkouts people are setting limits, own brands are replacing big name favourites and shoppers are trading down in the hopes of getting a little more for a little less.”

Fuel costs

Vehicle fuel sales further rose by 1.1% as more employees moved back to the office in hybrid work schedules.

“Then there’s another hike in fuel sales. The price at the pump might trigger mild palpitations every time motorists fill up, but businesses have been pushing hard to get more people back in the office,” said Hewson.

“Hybrid working is undoubtedly here to stay and fuel sales haven’t returned to pre-covid levels, but they have been slowly creeping back up.”

“It will be interesting to see how recent train strikes, which have forced many people back to their kitchen tables, will impact the trend.”

Fashion stays in business

Meanwhile, non-food store sales remained flat and clothing sales grew by 2.2%, which was offset by a 2.3% fall in household goods such as furniture and department stores.

“There are a couple of notable exceptions. Those people who are managing to get away on holiday are updating their summer wardrobes— for many it’s been a couple of years since they’ve needed beach wear and the lipstick effect is very much in evidence,” said Hewson.

“Cutting back is hard work, it’s demoralising, so spending a little on something that makes you feel better about yourself, particularly when it’s combined with a much longed for vacation seems like a no-brainer.”

“And with a glut of postponed events clogging up the calendar, there will be a few people needing to adjust for lockdown habits.”

The ONS confirmed a slide in online retail sales to 26.6% from 27.1%, however sales remained significantly higher than the 19.7% rate in February 2020 before the Covid-19 pandemic.

“Consumers have also been spending less online, but habits have changed and even people who weren’t comfortable shopping from their sofas have been won over and will still reach for their tablets if life gets in the way of them hitting the high street,” said Hewson.

Overcast outlook on horizon

However, consumers have definitely started to take the rising cost of living into account, and the clock is ticking down the days until customers draw a line in the sand and cut back spending on the less essential retail products in life.

“But it is rising prices that will be troubling retailers the most as they look beyond the summer months and towards that crucial golden period,” said Hewson.

“Budgets don’t stretch, a pound can only be spent once and people are having to make tough choices.”