Retail sales enjoy healthy October pick-up providing better reassurance on UK growth

20th November 2014

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Retail sales volumes rose by a robust 0.8% month-on-month in October after falling back by 0.4% in September.

But year-on-year growth picked up significantly to 4.3% over the month from 2.3% in September, although this was inflated by the fact that sales fell appreciably in October 2013.

Given the recent anxieties over the strength of the UK’s economy in that it has been losing some momentum October’s rebound will be particularly welcomed and will encourage retailers’ hopes that this will be a decent Christmas for them.

Howard Archer, chief UK and European economist at IHS Insight said: “The October sales figures are both encouraging and reassuring, but it still really needs a marked pick-up in earnings growth to really underpin sustainable, strong consumer spending.

“Meanwhile, the strong October retail sales figure may fuel suspicion that the Bank of England could end up raising interest rates around August rather than very late on in 2015.”

The underlying pattern in UK retail sales also firmed in October, although it remains softer than it was earlier in the year. Specifically, the three-month/three-month growth rate in retail sales volumes improved to 0.4% in October from 0.2% in September.

The improvement in retail sales was widespread too where sales of household goods were particularly strong, especially furniture, which have obviously been helped by the overall pick-up in housing market activity. However, clothing sales continued to be limited by the very mild weather hitting demand for warmer clothing and winter fashions.

“In a number of respects, the fundamentals for consumer spending are decent, with confidence at a relatively high level, employment high and consumer price inflation – 1.2% in September – at a five-year low. Furthermore, there are signs that earnings growth is finally beginning to trend up. Specifically, total annual weekly average earnings growth improved to 1.4% in September from 0.9% in August and 0.4% in May,” added Archer.

On the down side, many consumers’ purchasing power has been constrained appreciably by extended low earnings growth – and the recent increases in earnings are still limited and from a very low base.

Archer said: “Given still high debt levels, a number of consumers may still be worried by the possibility that interest rates will rise before long – even if the likelihood of the Bank of England acting before late-2015 has seemingly receded appreciably.

“And while consumer confidence is still at a relatively high level, it did ease back in both October and September from August’s equal highest level since early 2005. Potentially worryingly for retailers, consumers’ opinion of the climate for making major purchases fell back markedly in October, albeit after reaching a seven-year high in September.”

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