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The British Retail Consortium’s latest data on UK retail spending were released overnight, and didn’t make encouraging reading, with non-food sales falling at their fastest rate in almost six years as rising inflation weighs on real incomes.
Here’s what analysts are saying about the figures.
Samuel Tombs at Pantheon Macroeconomics stressed that the weakness was “not solely due to Easter”.
Granted, the BRC does not adjust its data for calendar effects, so the year-over-year rate will have been depressed by the fact that Easter was in March last year, but in April this year. The official data, by contrast, is adjusted for calendar effects. That said, the boost to sales over the Easter holidays has declined over recent years, now that many consumers shop online. What’s more, the trend in sales volumes has weakened more decisively than the BRC’s measure suggests, because deflation on the high street has eased.
Some of the weakness of retail sales in Q1, we think, reflects consumers’ decision last year to use credit to undertake big ticket purchases before prices rose sharply this year. This shift in the timing of spending flattered retail sales growth in Q4, at the expense of Q1.
Emily Nicol at Daiwa Capital Markets said the slowdown spells bad news for the country’s economic growth rate, given its importance in sustaining the economy last year:
There is little doubt that the underlying trend in retail sales is weakening – the average three-month growth fell to just 0.1%3M/Y, the softest rate since 2008. And with prices accelerating, the survey suggested that consumers appear to be cutting back on purchases of non-essential items.
Overall, the survey reinforced our view that consumer spending, the main source of growth in the UK over recent years, is losing steam, suggesting therefore that GDP growth is set to moderate in 2017 as rising prices will continue to squeeze real wages.
Howard Archer, chief European and UK economist at IHS Markit, said sales are unlikely to rebound much in the coming months, despite the impact of a later Easter:
The overall impression coming through is that consumers are now moderating their spending as markedly higher inflation eats into their purchasing power in tandem with subdued earnings growth.
Worrying for UK growth prospects, the fundamentals for consumers look odds-on to weaken markedly further over the coming months as rising inflation eats further into purchasing power with the squeeze reinforced by muted earnings growth. It is also very possible that consumers will face a weakening labour market over the coming months.