UK Retail Sales Plunge - ING
James Smith, Economist at ING, suggests that the latest batch of UK
retail sales data was very disappointing and adds to the generally
downbeat tone of UK data released over the past week.
“Excluding the volatile auto fuel component, the volume of retail sales fell by -1.6% MoM, the largest monthly fall since early 2014. The declines were fairly broad-based, with the largest falls appearing in sales of clothing and household goods. We would add some caution though when interpreting this figure – since the 2015 Rugby World Cup, which was hosted in the UK, retail sales have been particularly volatile on a month-to-month basis. This could be attributable to the seasonal adjustment process, so the underlying explanation for this disappointing data could easily be statistical rather than economic.
That said, we have seen consumer confidence decline gradually over the past few months, with the GfK survey suggesting that consumers are becoming less optimistic about the economic situation over the next year. This may suggest household spending could soften over the coming months. The latest employment data would, at the margin, add some weight to this argument, although as we noted yesterday, we still remain fairly upbeat on the prospects for wage and employment growth, depending on how the uncertainty surrounding the forthcoming referendum affects business investment/hiring intentions over the next few months.
Attention will now turn towards next week’s first quarter GDP data, which we expect to show that growth slowed from the 0.6% reading in Q4 to 0.3-0.4% QoQ. Business surveys, along with spending and investment data, have softened since the start of this year. Incidentally, if the economy did slow to 0.3%QoQ, that would be the lowest rate of growth since 2012. Looking further ahead, the outlook for interest rates largely depends on the outcome of the forthcoming referendum, but if the UK votes to remain in the EU and activity rebounds later this year, we feel that medium-term inflation/wage pressures will prompt the Bank of England to hike rates relatively quickly, perhaps as early as November.”