UK retailers' sales recovery continues as sales surge in June

Sales at larger UK retail chains have surged much higher than expected this month, providing more evidence of a recovery from the weather-affected first quarter.

Retailers reported an average sales jumped to a balance of +32 in June, the CBI's distributive trade survey found, up from May's +11 to the highest level since September and better than the market's expectation for a balance of +10.

The balance comes from 43% of retailers saying sales volumes were higher in the year to June and another 10% saying they were down.

Furthermore, there was a balance of +19% of retailers saying that the volume of sales was good for the time of year, a measure that more closely mirrors the official retail sales data, which was up from -1% a month before at the highest since December 2016. Retailers expect seasonal sales volumes to improve in the year to July, with a balance of +25%.

The most recent official data from the Office for National Statistics showed retail sales volumes rose 1.3% month-on-month in May and 1.8% in April, bouncing back from a weather-influenced drop in March.

High street sales growth was reported across retail sub-sectors, with the pick-up in June driven particularly by a rise in non-store sales, department stores, durable household goods, with grocers and hardware stores faring well. On the downside, carpet and furniture stores and clothing retailers saw a drop in sales volumes in the year to June.

Anna Leach, the CBI's head of economic intelligence, said: “Higher-than-average temperatures seem to have had a positive impact on shoppers, with retailers benefitting from above-average seasonal sales and improved order volumes growth.

"While today’s findings will bring some summer cheer to retailers, underlying conditions for the sector remain challenging – household spending remains under pressure from the slow recovery in real wage growth and the sector is still grappling with key structural changes like digital transformation.”

Internet sales were reported to have grown at a faster rate than the long-run average for the first time since January, although retailers said they expected growth to ease slightly in the year to July.

It was a "hot survey", Howard Archer, chief economic advisor to the EY ITEM Club, saying the sector's sales have seemingly benefited from a number of recent helpful factors including the good weather and the World Cup, plus a likely boost from the Royal Wedding in the second half of May.

"Improved consumer activity provides some reassurance on second quarter growth prospects after a dire set of April manufacturing, construction and trade data," Archer said. "However, consumers still face a pretty challenging environment and there is no guarantee that they will spend at a robust rate over the coming months. Consumers have faced an extended squeeze on their purchasing power, while consumer confidence has been fragile."

While the main support to consumer spending has come from growing levels of employment, with inflation moderating and earnings growth firming, the rise in oil prices to a three-and-a-half year high in May could lead inflation to edge back up in the near term and hold back the improvement in consumer purchasing power.

Economists at Pantheon Macroeconomics said the time-of-year balance hitting its highest level in more than 18 months was encouraging but pointed out that the CBI’s survey's mid-month closing date tends to reflect how sales performed in the previous month as well as the current month.

"We already know from the official data that retail sales jumped in May. Moreover, it is difficult to see how strong growth in retail sales can be maintained. A wave of price hikes by energy companies will push inflation up over the summer, preventing wages from rising in real terms," said Pantheon's Samuel Tombs.

With both business surveys and job vacancy data pointing to a slowdown in employment growth, alongside a pick-up in saving intentions and mortgage rates climbing, have inclined him to believe that a better trend in retail sales "won’t emerge until next year".