Retail Sales (Jul.) - Capital Economics
UK Economics

Retail Sales (Jul.)

UK Data Response
Written by Gabriella Dickens

The rise in retail sales in July was fairly encouraging and supports our view that the economy has picked up in Q3 after contracting by 0.2% q/q in Q2.

Reasonable start to Q3

  • The rise in retail sales in July was fairly encouraging and supports our view that the economy has picked up in Q3 after contracting by 0.2% q/q in Q2.
  • Indeed, July’s 0.2% m/m rise in retail sales volumes beat the consensus forecast of a fall of 0.2% m/m. What’s more, the increase came on the heels of a strong 0.9% m/m rise in June.
  • Admittedly, the rise was not broad-based. While, non-store retailing rose by a whopping 6.9% m/m thanks to online promotions, and spending in department stores increased for the first time this year by (1.6% m/m), most other sectors saw declines. (See Table 1.)
  • Household goods in particular had a poor month falling by 5.4% m/m, reflecting the weakness in housing market activity. Clothing sales also fell by 0.2% m/m despite warmer than usual weather in July. Indeed, we already knew from the CPI data that the summer clothing discounts were smaller this year than last.
  • But even if sales fail to rise in August and September, retail sales would still rise by 0.7% q/q in Q3 as a whole, the same as in Q2. (See Chart 1.) Of course, the retail sector only makes up about 30% of total household spending. But other indicators suggest that spending growth off the high street appears to have remained fairly steady. So July’s figures leave us a little more confident that the economy avoided another contraction in Q3. We have pencilled in a 0.4% q/q rise in GDP in Q3.
  • As ever, the outlook further ahead depends on what happens with Brexit. If there is a no deal, consumer spending growth would probably fall. But wage growth rose to an 11-year high in June, jobs growth was still buoyant and inflation remained close to the Bank of England’s 2% target. So if there isn’t a no deal, we see no reason why household spending should continue to underpin growth in the economy.

Chart 1: Retail Sales Volumes

Source: Refinitiv, Capital Economics

Table 1: Retail Sales Volumes

All Retailing

Retail ex petrol

Food stores

Non-food stores

Non store

%m/m

%3m/3m

%y/y

%m/m

%m/m

%m/m

%m/m

Apr

-0.3

1.7

5.0

-0.5

-0.6

-0.8

0.9

May

-0.4

1.7

2.3

-0.2

-0.4

-0.2

0.3

Jun

0.9

0.7

3.8

0.8

0.1

1.5

0.6

Jul

0.2

0.5

3.3

0.2

0.0

-1.4

6.9

Source: ONS


Gabriella Dickens, Assistant Economist, +44 20 3974 7421, gabriella.dickens@capitaleconomics.com