UK Retail Sales Bounce Back!
Please note this blog post was published over 12 months ago and so may not include the most up-to-date information, for example where regulation around investing has changed.
After a poor start to the year for the UK retail sector, May’s data for retail sales (excluding fuel) exceeded analysts’ expectations.
Results released on Wednesday show sales increasing by 1.3% on the month. On a year on year basis sales are up 4.4%. This annual rise exceeds forecasts by 1.9% reflecting an underestimation of the performance due to negative perceptions around the sector.
The announcement of the positive result lead to a 0.50% rise in sterling against the greenback.
UK Retail Sales (Ex Automotive Fuel) YoY Growth
Source: Bloomberg & ONS, 14 June 2018
The UK retail sector, and activity generally, had a relatively gloomy first quarter. UK shoppers experienced the wrath of the ‘Beast from the East’, which as we mentioned last week spilled over into lower industrial production, construction and wider services related activity. For retail, the main drag has been non-weather related – real incomes have been supressed by rising inflation at a time of stagnant wage growth. Across the media, the catchall excuse for everything is BREXIT!
Recently though the mood has turned more positive. The data suggest shoppers in May were more willing to spend, spurred on by a consistent spell of glorious weather and the nation’s upbeat mood in response to the Royal Wedding celebrations. Aside from these transitory effects economists have a less engaging way of explaining the effect – rising real disposable incomes. This means wages have started to rise faster than inflation but the trend is in its infancy right now. The most recent data on wage growth and inflation showed the continuation of positive real income growth with figures for the end of May reporting a 2.8% increase in wages, whilst inflation held at the annual rate of 2.4%.
As mentioned, perceptions around the retail sector tend to be negative. The high street is in flux providing a source of negative news for the media. They can gorge themselves on a veritable feast of negativity as businesses shed jobs, or go under – BHS, Maplin and M&S to name a few.
Of course, we are now all familiar with the shifting trends towards shopping online and how it is decimating the traditional bricks and mortar retailers. For example, 17.5% of all retail purchases (excluding fuel) in May were carried out online. Behind the scenes traditional retailers are working to enhance their online presence as a way of retaining market share, but for some it is too little too late. In future, when we hear negative news associated with the retail space it is worth making the distinction between total amounts being spent by consumers compared to the methods of spending (i.e. high street or online). Recent upbeat retail sales figures are a positive reflection on the health of the UK economy and point to improving levels of consumer confidence.
The good weather cannot be guaranteed, but analysts are expecting strong retail sales to continue in June/July as the world cup kicks off. Consumer spending, of which retail sales form a part, is a significant contributor to UK economic growth and evidences a kickstart to confidence. Expectations for rates being raised at the Bank of England meeting in June are low, but stronger retail sales figures have increased expectations that the Bank of England will be confident enough to raise rates at their next meeting in August.
