UK: Warm weather gives retail sales a temporary boost - ING

UK consumers got ready for summer in June, but the respite for retailers is likely to prove temporary as falling real wages continue to bite, according to James Smith, Economist at ING.

Key Quotes

“The second warmest June on record, combined with the earlier timing of Eid celebrations this year, led to a reasonable rebound in UK retail sales in June. The key measure to watch, which excludes auto fuel, rose by 0.9% on the month. The recovery was fairly broad-based, with a pick-up in sales of clothing and household goods, corroborating findings by the British Retail Consortium that there was increased interest in summer collections.”

“But it’s also worth noting that the retail sales data has been extremely volatile for some time now. The increasingly rapid changes in the way consumers shop is making life difficult for statisticians. The rise of events such as Black Friday, and most recently Amazon Prime Day, mean that households are spending their money in very different ways and frequencies, making seasonal adjustment more difficult.”

“All of this aside, today’s rebound in sales does not change the fact that the household squeeze is intensifying as real wages continue to fall. Recent data from payments firm Visa suggested that spending in the second quarter was the most sluggish since 2013. That’s also evident from the annual rate of retail sales growth, which at 3%, is considerably lower than the near-8% increases recorded towards the end of last year.”

“That’s a key reason why we don’t anticipate a Bank of England rate hike this year.”