UK: Better real wage growth - ING

According to James Smith, developed markets economist at ING, 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.

Key Quotes

“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.”

“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.”