Our comments on ONS retail sales figures

October proved weak across the board for retail. It was evident from Wednesday’s inflation number that consumers have been hit with higher energy prices, which took a toll on retail spending. We stand at a crucial point in the economic cycle, as the growth spurt of the last few months seems to be petering out. 

Rates are probably not coming down very fast next year, and corporate taxes are on the rise, burdening both businesses and consumers. Impeding trade tariffs and general policy uncertainty will likely cause even more caution in High Street. 

The UK economy has been steadily picking up the pace in the past few months, and August’s higher than expected retail sales are a testament to the fact. Economists have nearly doubled their end-of-year GDP projections for the UK in the last three months.

Warm weather did play a role in the latest figures, but almost all categories posted solid growth. A robust retail sector may delay rate cuts from the Bank of England, to be sure, but there’s nothing fundamentally wrong with solid economic growth.  

UK retail sales fell by 1.2% month-over-month in June, after a strong 2.9% monthly rise in May. On a year-over-year basis, sales were down 0.5%.  The cooler weather in the first half of the month was partly to blame: weather-sensitive sub-sectors such as clothing and footwear were particularly hard hit, falling by 1.6%. 

After a lacklustre first half of the year, with retail sales down 0.1% YoY, we expect retail sales growth to pick up in the second half of 2024. Our view is supported by improving consumer confidence, positive real wage growth (+2.3% YoY in May) and a tight labour market.

The UK retail activity plummeted in April, across most categories, with the only exception being e-commerce and online sales. The primary culprit was bad weather. However, we remain optimistic and prefer to treat the latest set of retail numbers as an outlier. Per the latest GDP data, the UK is now firmly out of recession. This paired with better online sales, continuously improved consumer confidence data and the prospect of rate cuts beginning this Autumn, are all positive signs for the times ahead.

"The number is perplexing to be sure. Stronger GDP and inflation data should have been accompanied by stronger consumption. Nevertheless, we remain positive. Higher prices have not made consumers disappear. But they have made them more selective. Consumption was higher last year when good opportunities arose, and of course during the festive season. The data is encouraging. Even though economic activity is projected to be more sluggish in the first six months of 2024, consumers are optimistic enough to keep the economy at an even keel, and contribute to a rebound when interest rates begin to drop."

"The number is certainly bad, but also consistent with the previous bad number, slower growth figures and lower inflation. We are therefore looking at one of two possibilities. As inflation falls to manageable levels and the US central bank has all but announced a stop to its rate hike cycle, we also expect the Bank of England to abstain from increasing rates. Consumers who won’t fear higher mortgage payments going forward could be more confident. Those who are increasingly looking for better deals might just be saving ahead of Black Friday and Christmas.

However, we could be at a breakpoint in terms of consumption across all sectors. We, thus, believe that instead of basing our predictions on the current number and the November figure, we should wait and gain a clearer picture of consumer appetite after January."

“Retail sales are slowing, but remain above expectations. Despite high interest rates and inflation eating away at real incomes, consumers are showing resilience. Given that we are very close to the end of the rate hike cycle, we expect this resilience to persist across most categories.

Retailers will remain focused on cutting costs and creating value deals in the lead up to the bumper Christmas period.”

"Sales surprisingly grew helped by the warm weather and extra May bank holiday for the Coronation weekend. Whilst confidence rose, the outlook is bleaker with inflation much too high for comfort and a continued tightening of household budgets. The central banks appear to be pulling out all stops in order to curtail consumption and bring prices down and we don’t expect any giveaways from the government.

The economic environment will remain challenging over the summer for retailers who will need to focus on reducing costs, increasing promotions and bundling great product offers to attract customers".