UK retail sales edge up in August – helped by a dash for vacuum cleaners

18th September 2014

UK retail sales volumes firmed by a solid if uninspired 0.4% month-on-month in August having been flat in July and edged up 0.1% in June official figures show.

While last month’s rise points to some appetite to spend amongst consumers, they do appear to have flagged after spending rose at a strong rate overall throughout the first six months of 2014.

Howard Archer, chief UK & European economist at research group IHS Insight notes that the three-month rolling growth rate in retail sales volumes eased back to 0.5% in August from 0.6% in July and as a result are now likely struggle to grow by more than 0.5% quarter-on-quarter in the July to end of September. This compares with retail sales surging 1.5% in the second quarter.

He said: “The signs are therefore that retail sales are going to see significantly reduced growth in the third quarter compared to the second, which reinforces our view that softer consumer spending will contribute to GDP growth slowing slightly in the third quarter – we see GDP growth easing back to 0.7% quarter-on-quarter from 0.8% quarter-on-quarter in both the second and first quarters.”

Looking under the bonnet, Archer highlighted the fact that furniture sales were robust in August, while vacuum sales surged as consumers sought to buy high powered vacuum cleaners before the EU energy saving regulation came into force at the end of August. Textiles, clothing and footwear also saw robust growth in August.

“It is evident that many retailers continued to encourage consumers to spend by engaging in discounting and promotions in August. The ONS’ retail sales deflator fell by a record 1.2% year-on-year in August. While this reflected a sharp fall in petrol prices, it is notable that the retail sales deflator excluding petrol was down by 0.7% year-on-year with food stores’ prices falling by 0.1% as the supermarket pricing war continued,” added Archer.

Looking ahead he questioned how strong consumer spending can be on a sustained basis until current very low earnings growth picks up appreciably. Archer said: “The prospect of interest rates starting to edge up before long may also be a concern to a significant number of consumers given that debt levels are still high.”

Helal Miah, investment research analyst at The Share Centre, noted that while consumer spending remains relatively robust, despite the lack of wage growth, these latest numbers benefitted from benign weather conditions and the one off impetus of a rush to buy powerful vacuum cleaners.

He added: “We continue to believe that retail sales will remain robust into the foreseeable future as unemployment continues to fall, interest rates will stay low by historic standards and if we begin to see a rise in wages then this will add further to consumer’s confidence to spend. However, Scottish Independence or a weakening sterling could act as a dampener.”

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