UK retail sales for September disappoint as weather and prices weigh

Retail sales numbers for September from the Office for National Statistics showed retail sales were flat compared to August, an improvement from the 0.3% fall a month ago but short of a 0.2% rise expected by economists.

The headline year-on-year growth figure showed a 4.0% increase, down from the 6.2% revised gain from previous month and short of the consensus forecast of 4.4%.

ONS said decreases in volumes from food stores, other stores and textile, clothing and footwear stores were offset by increases in department stores, household goods stores and non-store retailers.

For the third quarter as a whole, retail sales rose 1.88%, which was the best quarter since the end of 2014.

"Retail sales in September 2016 were unchanged from August 2016, however the underlying trend is one of strength, suggesting consumer confidence has remained steady since June's referendum," said senior ONS statistician Kate Davies.

"There was some variation between store types, clothing stores saw a fall in the quantity bought in part due to rising prices and a warmer than average September."

Economist Howard Archer at IHS Markit said quarterly growth fueled the belief that the consumer played a leading role in the apparent resilience of the economy following June’s Brexit vote, but saw conflicting forces at play in the disappointing September numbers.

He said the flat retail sales "could be a sign that consumers are starting to rein in their spending as inflation rises", but accepted the effect of warm weather on demand for autumn clothing and higher clothing prices.

"Furthermore, retail sales were still very strong over the third quarter as a whole, and there could have been an element of some consumers taking a breather after splashing out over the summer," Archer said, forecasting a resulting 0.4% quarter-on-quarter growth in GDP when the ONS's posts its preliminary estimate on 27 October.

Ruth Gregory at Capital Economics said she very much doubted this strength in retail sales will last in the face of softer employment and wage growth and higher inflation.

While the retail sector should add 0.1 percentage points to GDP growth, "some moderation in quarterly retail sales growth will surely occur ahead", she said, on top of a wider economic slowdown leading to softer employment and wage growth, with the drop in sterling set to lift inflation and eat into consumers’ real spending power.

"That said, low interest rates and a likely easing in the fiscal squeeze at the Autumn Statement should help offset some of these effects. Accordingly, we expect growth in household spending to only slow from about 2.7% in 2016 to around 1.5% in 2017."