UK Retail Rebound Fails To Correct Deteriorating Sales Trend
IHS Markit | Mar 24, 2017 05:42
The consumer, which has provided the main engine of UK economic growth in recent years, is showing signs of running out of steam. Looking at the underlying trend, retail sales are falling at the fastest rate for seven years as households struggle with rising prices and subdued pay growth.
The slowdown sends a warning to policymakers of the likely need to support the economy: consumers are pulling-back on spending at the same time as the country faces heightened uncertainty about the outlook as Article 50 is triggered.
h3 Real employee pay growth/h3The welcome news of a rebound in UK retail sales in February is marred by a more disappointing underlying trend that’s appeared. Sales bounced back by a stronger than expected 1.4% in February, according to the Office for National Statistics, but over the latest three months sales have slumped 1.4%, which is the worst performance since March 2010.
Unless we see something spectacular in the way of sales growth in March, which looks wholly unlikely, the retail sector looks set to act as a drag on the economy in the first quarter. So far, the average monthly volume of retail sales is running 1.2% below that seen in the fourth quarter.
h2 Weak start to the year/h2The downbeat news on retail sales joins other disappointing signals on the health of the economy at the start of the year. Both manufacturing output and construction output fell in January. Business surveys meanwhile, point to the pace of economic growth waning to 0.4% in the first quarter, down from 0.7% at the end of last year, with the slowdown linked to weaker consumer spending.
h2 Household squeeze/h2Consumer spending looks set to come under increasing pressure in coming months amid subdued pay growth and rising prices. Real pay growth has slowed sharply in recent months and is likely to start falling soon. Inflation has meanwhile already jumped to 2.3% and could easily rise to 3% later this year, given sharp increases seen in companies’ costs as the weak pound exacerbates the impact of rising global commodity prices. Surveys of households are already showing signs of financial worries deepening.
h3 Household finance survey/h3
Get The App
March PMI surveys will give a clearer picture of the economy’s momentum in the first quarter. However, the data available so far this year suggest that the Bank of England will need to move away from talking about raising interest rates towards ensuring the economy maintains growth momentum during the uncertainty caused by Brexit negotiations.
Disclaimer: The intellectual property rights to these data provided herein are owned by or licensed to Markit Economics Limited. Any unauthorised use, including but not limited to copying, distributing, transmitting or otherwise of any data appearing is not permitted without Markit’s prior consent. Markit shall not have any liability, duty or obligation for or relating to the content or information (“data”) contained herein, any errors, inaccuracies, omissions or delays in the data, or for any actions taken in reliance thereon.
In no event shall Markit be liable for any special, incidental, or consequential damages, arising out of the use of the data. Purchasing Managers' Index™ and PMI™ are either registered trademarks of Markit Economics Limited or licensed to Markit Economics Limited. Markit is a registered trade mark of Markit Group Limited.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.