June’s bounce in retail sales has to be viewed in the context of monthly declines in April and May. While higher real wages should help spending in the near-term, the effect of Brexit uncertainty makes for a tricky outlook for retailers in the second half of the year.
At face value, June’s 0.9% bounce in UK retail sales (excluding fuel) suggests that the better real wage growth backdrop may be translating into stronger demand among shoppers.
However it’s worth noting that June’s rise follows two consecutive month-on-month declines during April and May. The underlying drivers of June’s increase were also fairly mixed – second-hand stores reportedly were one of the best performers, while department stores saw the sixth consecutive month-on-month decline in sales.
This latest rise also doesn’t quite tally with the messages from the British Retail Consortium and other data providers, whose data suggests June was another sluggish month for the high street.
In principle though, the better fundamental outlook for spending should lift spending over coming months: wage growth is continuing to perform solidly, while the inflation backdrop looks relatively benign. However sentiment among consumers remains depressed and surveys point to particular concerns surrounding the general economic situation.
The real wage backdrop is looking brighter
If this uncertain backdrop continues to weigh on the consumer spending story, this could make for a tough time for retailers. Margins are likely to be squeezed further as firms make preparations for a possible ‘no deal’ Brexit at the end of October.
This is a costly process, not just in terms of working capital requirements, but also in terms of warehousing. According to the UK Warehousing Association, the inner-M25 (London) area has a vacancy rate of just 2.2%. For many, this will make it tricky to source the necessary space to store extra stock, and could complicate efforts to build inventory ahead of key Black Friday and Christmas trading periods.
Read the original analysis: Tough outlook for UK retailers despite June sales bounce back
Content disclaimer: This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more here: https://think.ing.com/content-disclaimer/
Recommended Content
Editors’ Picks
EUR/USD rises toward 1.0700 after Germany PMI data
EUR/USD gains traction and rises toward 1.0700 in the early European session on Monday. HCOB Composite PMI in Germany improved to 50.5 in April from 47.7 in March, providing a boost to the Euro. Focus shifts Eurozone and US PMI readings.
GBP/USD regains 1.2350 ahead of UK PMIs
GBP/USD is recovering ground above 1.2350 in the European session, as the US Dollar comes under fresh selling pressure on improving risk sentiment. The further upside in the pair could be capped, as traders await the UK PMI reports for fresh trading impetus.
Gold price flirts with $2,300 amid receding safe-haven demand, reduced Fed rate cut bets
Gold price (XAU/USD) remains under heavy selling pressure for the second straight day on Tuesday and languishes near its lowest level in over two weeks, around the $2,300 mark heading into the European session.
PENDLE price soars 10% after Arthur Hayes’ optimism on Pendle derivative exchange
Pendle is among the top performers in the cryptocurrency market today, posting double-digit gains. Its peers in the altcoin space are not as forthcoming even as the market enjoys bullish sentiment inspired by Bitcoin price.
Focus on April PMIs today
In the euro area, focus today will be on the euro area PMIs for April. The previous months' PMIs have shown a return of the two-speed economy with the service sector in expansionary territory and manufacturing sector stuck in contraction.