Consumer confidence remains undimmed in the face of Brexit uncertainty as official figures today showed British shoppers sent UK retail sales figures above forecasts.
The Office for National Statistics revealed that retail sales in August 2017 increased by 1 per cent compared with July – compared to an expected 0.2 per cent – and were up by 2.4 per cent versus August 2016.
This represents the 52nd consecutive month of year-on-year increase in retail sales. Non-food stores and non-store retailing were the main contributors to growth.
Consumer confidence appears to be undimmed at the moment despite all the uncertainty surrounding Brexit.
‘The contribution of food stores remained flat year on year whilst there was a fall in the contribution of growth within petrol stations. This shows contributions to the overall growth came from ‘non-essential items,’ the ONS noted.
The pound, which already had the wind in its sails since the Bank of England hinted at a rates rise last Thursday, was further lifted by the news. As of mid-morning on Wednesday sterling was up 0.3 per cent for the session against the dollar to $1.3542 and 0.16 per cent versus the euro at €1.1281.
The positive economic news comes as Prime Minister Theresa May gears up to deliver a key speech on the UK’s Brexit negotiating position in Florence on Friday.
Another significant aspect of the news is that strong retail spending could add to the inflationary pressure already in the economy, further raising the prospect of a rate rise this year.
‘August’s mixed weather failed to dampen shoppers’ spirits with retail sales recording a welcome boost in sales growth and exceeding what many had forecast,’ said Ian Gilmartin, head of retail and wholesale at Barclays Corporate Banking.
‘Encouraging as this is, sterling continues to be a double-edged sword for UK retailers; on one side, its weakness is prompting more Britons to holiday at home as well as attracting more tourists from abroad, but on the other, retailers are facing rising costs and inflationary pressures and increasingly they will have to pass some of this on to consumers through price rises.’
Theresa May is to deliver a key speech on Brexit this Friday in Florence.
Senior economist at Hargreaves Lansdown Ben Brettell added: ‘The UK consumer continues to show remarkable resilience, with retail sales in August blowing economists’ forecasts out of the water. Sales rose 1.0% on the month, against expectations for a much smaller rise of 0.2%.’
‘Spending has defied expectations of a slowdown since the Brexit referendum, and currently seems to be holding up despite weak wage growth and above-target inflation, Brettell continued. ‘This could bode well for economic growth – the UK economy is heavily reliant on the consumer, and economists had expected falling real incomes to eventually translate into weak retail sales.’
‘If this fails to materialise the economy could see a stronger second half to the year – though there are also growing concerns over the level of household debt, which is fuelling continued consumption in the absence of rising real wages.’
‘It is encouraging that retail sales proved resilient and bounced back in August,’ noted Andrew Sentance, senior economic adviser at PwC. ‘Anecdotal reports from retailers suggest that spending may have been helped by more ‘staycations’ in response to the weakness of the pound which pushes up the cost of overseas travel.’
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