Retail sales surprisingly pick up in September, BRC finds

UK retail sales unexpectedly rebounded in September as strong growth in food spending counterbalanced weather-weakened clothing sales, according to a closely followed survey.

The monthly 'monitor' survey from the British Retail Consortium (BRC) and KPMG showed total sales values picked up 1.3% year-on-year, slightly ahead of the three-month average of 1.0%.

Like-for-like retail sales values recovered to grow 0.4% in September from the decline of 0.9% in August, ahead of the consensus for a fall of 0.3%.

But the retail lobby group was cautious of the challenges that lie ahead as the fragile pound adds to import costs and economic uncertainty abounds around Brexit.

“While this month’s sales figures may add to the impression that Brexit impacts have been brushed off, it is still too early to judge as we have not yet navigated the roughest waters,” said Rachel Lund, head of retail insight and analytics at BRC.

She said reports of businesses’ reluctance to invest could slowly feed through to consumers and hurt their spending power.

“We are also likely to see some upward pressure on prices as we move into 2017 as retailers increasingly feel the impact of exchange rate movements, although the level of competition in the industry may mean increases are more muted than implied by the scale of the devaluation,” Lund said.

Economist Sam Tombs at Pantheon Macroeconomics said he continued to believe that "a sharp slowdown in retail sales growth lies ahead, as firms reduce hiring and inflation soars.

"Indeed, sterling’s further depreciation over the last week suggests that goods prices will shoot up next year, reducing growth in retail sales volumes to a near-standstill."

Clive Black at broker Shore Capital said the warmer weather into September was clearly unhelpful for the rag-trade's Autumn/Winter ranges, albeit as September progressed the 'mono-season' impact might have eased a little.

"In that respect we see scope for better trading conditions in the more normal, cooler, October."

For supermarkets, Black sensed October will be a month where grocery and non-food progress is more balanced ahead of the louder noise going into the peak year-end.

"Black Friday is expected by us to be a more intelligent event for the retail trade whilst Christmas, we believe, will be a bit of a blast for a population certain that the world did not come to an end after the Referendum but facing into 2017 with uncertainty about business investment, economic growth and living standards," he said.

"What is interesting though is that the disconnect between the fretting Metropolitan and City elite and the non-London masses persists and the folk up-North may have more fun this Christmas than their wealthier southern cousins."