Chris Williamson comments on today’s UK retail sales data
Chris said: “UK retail sales rebounded in October, and rising wages and lower interest rate expectations bode well for further robust sales growth in coming months. A sharp fall in shop prices meanwhile provides scope for the Bank of England to hold off raising interest rates.
“Retail sales rebounded in October, up a stronger-than-expected 0.8% after falling 0.4% in September. The increase pushed sales 4.3% higher than a year ago, the strongest rise since April.
“The September decline had always looked temporary, having been largely attributed to warm unseasonably warm weather, which hit sales of autumn and winter clothing.
“Retail sales have now grown in year-on-year terms consistently since April of last year, which is the longest sustained period of growth since May 2008.
“However, there are signs that the underlying trend has eased compared to earlier in the year. Sales in the latest three months are up 0.4% on the previous three months. By comparison, sales surged 0.8% in the first quarter and by 1.6% in the second quarter.
“This slower rate of increase ties in with other business survey data which indicate a waning of economic growth in the recent months. Most notably, the PMI surveys indicated the slowest rate of economic growth for 16-months in October.
“The improvement in sales volumes also in part reflects aggressive discounting, especially among the supermarkets, rather than solely being driven by increased demand. Lower commodity prices, notably for petrol and food items, are also helping. Prices were down 1.5% on a year ago on average, the steepest decline since 2002. Petrol prices fell to their lowest since late-2010.
“With economic growth showing signs of slowing in the fourth quarter, falling prices provide welcome additional scope for the Bank of England to keep interest rates on hold at their current record low.
“However, while slowing, the rate of economic growth clearly remains robust, merely easing from especially strong growth seen over the summer, and consumers remain in spending mode. As such, October’s rebound in sales provides encouraging news for retailers in the lead up to the all-important Christmas trading period.
“Furthermore, with mild weather likely to have continued to hit clothing sales in October, we may see stronger growth in these stores in November alongside the colder weather.
With wages starting to show signs of picking up and few signs of imminent interest rate hikes, consumers are starting to feeling brighter, which should support spending in coming months. Markit’s Household Finance Index rose to the second-highest level seen since the financial crisis in November, buoyed by rising incomes and lower inflation expectations.”
