Retail Sales (May) - Capital Economics
UK Economics

Retail Sales (May)

UK Data Response
Written by Andrew Wishart

The bigger-than-expected rebound in retail sales in May, was driven by another big step up in online sales and the reopening of DIY stores, and is a sign that the economy started to get back to its feet. But we would be wary of getting carried away, as incomes were still largely protected by the government’s furlough scheme and consumers weren’t able to spend their money on anything else.

Online sales and DIY stores drive the recovery

  • The bigger-than-expected rebound in retail sales in May, was driven by another big step up in online sales and the reopening of DIY stores, and is a sign that the economy started to get back to its feet. But we would be wary of getting carried away, as incomes were still largely protected by the government’s furlough scheme and consumers weren’t able to spend their money on anything else.
  • Having fallen by 22.7% between February and April, retail sales volumes rebounded by 12% m/m in May (consensus 5.7%). (See Table 1.) That left sales “only” 13.1% below their pre-coronavirus level despite non-essential shops remaining closed. However, the rebound was smaller than the 17.4% m/m increase in the US and 16.3% m/m rise in Australia, reflecting the fact that the UK is lifting restrictions more gradually.
  • With food sales down by 0.3% m/m, the rebound was due to a 23.7% increase in non-food sales and a 21.0% increase in “non-store” (predominantly online) sales. (See Chart 1.) Sales of household goods stores rose by an incredible 42% m/m. While still 29% down compared to February, this suggests locked down consumers took advantage of the reopening of DIY stores from 13th May to tackle home projects.
  • The further rise in online shopping in May means that non-store sales are up 51.8% since February. Online sales accounted for a third of sales in May, up from a fifth before the crisis hit. So the rebound in total sales masks the fact that physical retailers continued to struggle. High street clothing retailers’ sales, for example, were down by 62% compared to February even after accounting for the business they do online.
  • The rebound in sales suggests that GDP in the wholesale and retail sector rose by 18% m/m in May, more than we had anticipated. So the 2% m/m rise in GDP we pencilled in for May is probably too low, it might be more like 4%. If so, GDP would fall by 20% in Q2 rather than the 23% we forecast. But retail sales in May are likely to be a bright spot. After all, locked down consumers had little else to spend their money on. The real challenge to the recovery will be the unwinding of the government’s furlough scheme, which we suspect will cause unemployment to rise and slow the pace of the recovery. (See here.)

Chart 1: Retail Sales Volumes (2016 = 100)

Source: Refinitiv

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

Feb.

-0.4

-0.5

0.0

-0.5

-0.4

0.1

-2.8

Mar.

-5.3

-1.6

-6.0

-3.9

10.0

-19.5

5.4

Apr.

-18.0

-9.0

-22.7

-15.0

-4.1

-41.7

19.0

May

12.0

-13.5

-13.1

10.2

-0.3

23.7

21.0

Source: ONS


Andrew Wishart, UK Economist, +44 7427 682 411, andrew.wishart@capitaleconomics.com