Shore Capital has characterised UK retail conditions as subdued heading into the peak trading season, with the October Budget and high energy costs weighing on consumer confidence.
The BRC-KPMG Sales Monitor showed total retail sales growth of 1.3% in September, but the broker said food inflation was doing most of the heavy lifting.
Non-food sales fell 0.3%, with clothing and footwear particularly weak as lower-income households felt the pinch of higher motor fuel costs.
Health and beauty was the standout bright spot, with Shore Capital noting investment by Boots, Marks & Spencer, John Lewis, Flannels and Fragrance Shop driving category growth.
Online penetration continued to rise across both food and non-food, reaching 38.3% for non-food in September, putting further pressure on retailers with weak digital propositions.
Consumer confidence has improved since Andy Burnham became Prime Minister but remains well below levels that would support a meaningful recovery in discretionary spending.
Shore Capital said it expected the Bank of England to raise interest rates at least once before year end, potentially pushing base rates to 4% or higher.
Rising gilt yields have already pushed up mortgage costs, further squeezing housing market activity and dampening demand for home-related goods.
The broker said retailers exposed to the housing market remained "fit as butcher's dogs", with any meaningful recovery unlikely before 2027 at the earliest.
Shore Capital concluded that the build-up to the 2026 peak trading season was tame, and that overall demand was unlikely to excite investors, with individual stock selection the key differentiator.
