The U.K. retail sales growth came in above consensus expectations in June. Headline sales volumes rose 1 percent sequentially. Excluding sale of motor fuel, sales volumes rose 0.9 percent. Consensus expectations were for declines of 0.3 percent and 0.2 percent respectively.
Ahead of today’s release, expectations had possibly been influenced by the disappointing readings of retail activity from both the BRC and CBI surveys, especially the latter, which fell to lows not seen since 2009. Furthermore, given solid outturns for retail sales earlier in 2019, which had stimulated the overall level of retail spending, some forecasters had anticipated some further payback after declines in April and May. As it happens, the better-than-expected outturn for June capped anther decent quarter for retail, which rose 0.7 percent in the second quarter.
The wider outlook for retail spending in the months and quarters ahead is highly dependent on developments in U.K. households’ finances, said Lloyds Bank. While the headline CPI inflation is likely to hover around 2 percent for the rest of 2019, a number of those areas of the CPI basket that are captured by retail sales are seeing disinflation or deflation, which continue to provide considerable support to consumers.
With price developments for retail items proving a supportive factor for retail sales, further support continues to come from the labor market.
“This week’s report for May showed jobs continued to be added, while wage growth accelerated. Although these influences should support consumers’ ability to spend, developments around Brexit are likely to play a key role in households’ appetite to continue spending. How this dichotomy plays out is likely to be a key determinant behind the next move in UK interest rates”, added Lloyds Bank.
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