Following two consecutive monthly gains, a fall in sales in August was always likely. In the event, sales fell by 0.2% m/m (consensus 0.0%, Capital Economics -0.5%) which dragged annual sales growth to an three month low. However, with real wages growing at their fastest pace since June 2016 we doubt sales growth will ease off any further.
Sales solid despite fading online boost
- Following two consecutive monthly gains, a fall in sales in August was always likely. In the event, sales fell by 0.2% m/m (consensus 0.0%, Capital Economics -0.5%) which dragged annual sales growth to an three month low. However, with real wages growing at their fastest pace since June 2016 we doubt sales growth will ease off any further.
- The 0.2% m/m fall in sales was entirely driven by a 3.2% m/m fall in non-store (i.e. online) sales. But that just marked the partial unwinding of a 7.6% m/m jump in July due to promotions including Amazon’s prime day. (See Table 1.) The fall in online sales dragged total sales down by 0.3% m/m, and a fall in department store sales detracted another 0.1 percentage points from monthly sales growth. But those falls were tempered by increases in sales of food, petrol, and household goods.
- What’s more, while overall sales fell in August, the monthly rise in July was revised up from 0.2% to 0.4%. That left 3m/3m growth in sales at 0.6%, unchanged from Q2.
- Interestingly, given CPI inflation fell further than expected from 2.1% to 1.7% in August, the retail sales deflator picked up from 0.6% to 0.8%, a nine-month high. That suggests that retailers are becoming a little more confident, and feel able to raise prices.
- Looking ahead, surveys of retail sales are dire, suggesting sales will stagnate at best. But they have been overly-pessimistic for some time. With real pay rising at its fastest pace since 2016 and the unemployment rate very low, there is a good chance retail sales growth will actually pick up from here. (See Chart 1.)
- Today’s figures support our view that, unless there is a no deal Brexit, solid consumer demand will underpin modest GDP growth and see the MPC buck the global trend of monetary policy loosening. The Committee is set to leave interest rates unchanged at noon today. Moreover, strong pay growth and the fiscal loosening announced in the 2019 Spending Round should prevent any dovish shift in the language of the accompanying statement.
Chart 1: Real Pay Growth & Retail Sales Volumes
Sources: Refinitiv, Capital Economics
Table 1: Retail Sales Volumes
Retail ex petrol
Andrew Wishart, UK Economist, +44 20 7808 4062, firstname.lastname@example.org