Spending in food stores in the UK dropped in July for the first time in at least 25 years as the supermarket price war took effect, official figures showed today.
The year-on-year fall of 1.3% was the first since records began in January 1989, the Office for National Statistics (ONS) said.
It said the drop “suggests that prolonged discounting and price wars were having an effect on overall sales”.
The grocery sector has become a price-cutting battleground as Tesco, Asda, Sainsbury’s and Morrisons feel the squeeze from discounters Aldi and Lidl gnawing at their market share.
Tim Denison of research group Ipsos Retail Performance said: “Food retailers escaped the worst of the recession, in stark contrast to the non-food retailers, but are now feeling the heat as the economy recovers.
“The years of austerity have left their footprint on shopping habits with the popularity of discounters growing and supershed formats on the wane. The price war amongst the big four is really damaging them all and making it into a race to the bottom.”
Meanwhile the headline figure for retail sales showed a weaker than expected 0.1% growth month-on-month.
However, a three-month on three-month increase of 0.3% was the seventh consecutive improvement, the longest period of sustained growth by this measure since November 2007. Year-on-year volumes grew 2.6%.
Samuel Tombs of Capital Economics pointed to month-on-month sales volumes stripping out fuel being 0.5% higher.
He said the figures “provide reassurance that consumers are still willing to spend more even though an interest rate hike is looming”.
“With consumer confidence still at a high level and falling inflation set to enable real wages to rise before the end of the year, the recovery in consumer spending should maintain its strong pace over the coming months,” he added.
The ONS figures also showed online spending increased 11.2% in July on a year earlier but fell 1.9% compared to June.
The year-on-year growth in retail sales volumes of 2.6% was the weakest since November last year.
Rob Harbron, senior economist at the Centre for Economics and Business Research, said: “Today’s release provides further evidence that economic expansion in the UK is slowing.
“This year to date has seen the most rapid growth since the financial crisis, as both businesses and consumers shake off the gloom of recent years and return to spending.
“This trend couldn’t be sustained forever though, as the back half of 2014 is demonstrating.”
Ian Geddes, UK head of retail at Deloitte, said: “Many consumers are yet to feel the benefits of the economic recovery and are reluctant to let go of their recessionary behaviours, particularly when shopping for food.
“Consumers continue to show a willingness to spend on non-food items, but are doing so selectively.
“Clothing continues its good run, driven by promotions, while the furniture market remains buoyant – positively impacted by growth in the housing market.”