September’s retail sales figures were perhaps a bit of a relief given the intense Brexit uncertainty, but were hardly a picture of strength. However, if a Brexit deal is indeed agreed soon, household spending growth should regain some pace.
Disappointing end to Q3
- September’s retail sales figures were perhaps a bit of a relief given the intense Brexit uncertainty, but were hardly a picture of strength. However, if a Brexit deal is indeed agreed soon, household spending growth should regain some pace.
- The 0.0% m/m change in retail sales volumes was rather better than our forecast for a 1.0% m/m fall on the basis of the retail indicators already released. Encouragingly, the breakdown did not provide further evidence that Brexit uncertainty has caused households to rein in their non-essential spending. Non-food sales (the more discretionary part of spending) rose by 0.4% m/m. (See Table 1.) Household goods sales posted a particularly strong monthly rise of 2.0%, reversing the sharp fall at the start of the quarter. Meanwhile, the modest 0.6% m/m rise in food sales suggests that sales are not being boosted by households stockpiling ahead of the next Brexit deadline.
- Admittedly, these rises were offset by a surprisingly large monthly fall of 2.0% m/m in fuel sales, despite the 1.3% m/m drop in fuel prices. And it looks like sales in some sectors may have been primarily buoyed by temporary factors. Indeed, the solid 1.0% m/m rise in clothing sales could easily be due to temporary weather effects, if the unusually wet weather prompted consumers to renew their winter clothing
- Moreover, retail sales inflation dropped from 0.6% to 0.3%, its lowest rate since April, perhaps suggesting that poor sales have forced retailers to keep their prices subdued in an attempt to shift stock. So there are still few signs that firms are attempting to raise their prices and widen their margins in response to rising pay pressures.
- But at least sales volumes were up by 0.6% q/q in the third quarter overall, matching Q2’s 0.6% rise. This suggests that the quarterly rate of consumption growth may have held steady at 0.4% in Q3. (See Chart 1.) Overall, then, the figures leave us comfortable with our forecast for GDP growth of 0.4% in Q3. If anything, the risks could be on the upside for Q3. At the moment, there’s not much momentum going into Q4, but presumably spending growth would rise a bit if a Brexit deal is agreed.
Chart 1: Retail Sales Volumes & Household Spending (% q/q)
Sources: Refinitiv, Capital Economics
Table 1: Retail Sales Volumes
Retail ex petrol
Ruth Gregory, Senior UK Economist, +44 20 7811 3913, email@example.com