UK retail sales hold up in June but economists downbeat

A widely-followed gauge of UK retail sales was stronger than expected in June, although economists saw signs of caution on the part of consumers in the data in the run-up to the EU referendum and were generally downbeat regarding the immediate outlook for consumption.

The Confederation of British Industry’s reported sales index slipped from +7 in May to +4 in June. Nevertheless, that was better than the reading of -5 which retailers themselves had predicted.

Firms in the sector projected a recovery to +10 in July, although orders were seen continuing their fall, albeit at a slightly slower pace.

“Retail sales reported weak growth in the year to June, beating expectations of a modest fall and lifting sales slightly above average for the time of year,” the business lobby said in a statement.

Grocers reported a rebound in reported sales in the year to June, alongside robust growth in hardware, DIY and non-store sales. Yet growth slowed in the fashion sector and sales dropped in a number of other sectors, CBI said.

According to Dr.Howard Archer, chief UK+European economist at IHS Global Insight, consumers were cautious in the run-up to the referendum “but did not completely keep their hands in their pockets”.

However, the strong suspicion was that consumer spending would be “severely pressurised” for some time as a result of higher uncertainty, unemployment and inflation, with the latter squeezing spending power, Dr. Archer said.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics was of a broadly similar view, adding that the survey had been carried out before the Brexit ‘bomb-shell’.

“Consumer spending likely will do no better than stagnate in the second half of this year, as falling house prices dent confidence, inflation picks up in response to sterling’s depreciation and firms immediately stop increasing headcounts. Stagnant consumer spending alongside sharp falls in business investment likely will ensure that the economy enters a technical recession in the coming quarters.”