Strategy & economics

Chart of the month - September

Bumper UK retail sales in July as consumers shrugged off Brexit gloom

16/09/2016

Janet Mui

Janet Mui

Global Economist

The bumper UK retail sales figures for July and another solid report for August showed that shoppers were undeterred by Brexit uncertainty, contrary to the implications of appalling survey data in the immediate aftermath of the referendum. Core UK retail sales volumes (which exclude auto fuel) were up 1.7% over the two-month period; compared to a year earlier, core volumes were up only fractionally less than 6% and by over 6% including auto fuel. Most categories showed good momentum, although clothing sales were distorted by weather patterns. While the surprising strength in the data was partly attributable to warmer weather and discounting, it still provided comfort with regard to total household demand.

While we acknowledge that UK retail sales are volatile on a monthly basis, the three-month trend has been improving since the start of the year. The marked expansion in retail sales in July was consistent with the British Retail Consortium (BRC) retail sales numbers released a week earlier. BRC retail sales were up 1.9% year-on-year (YoY) in value terms and +3.5% YoY in real terms in July, which was the biggest gain in six months. Also, the high-frequency John Lewis weekly sales report, which is a good proxy for the trend in middle-class spending, has remained resilient and has shown no discernible referendum impact. Furthermore, the UK services Purchasing Manager Index (PMI), an activity indicator of a sector that represents almost 80% of the UK economy, rebounded markedly in August, back to pre-vote levels.

Further good news for the near-term outlook for the UK high street includes the recovery in the UK GfK measure of consumer confidence in August, having plummeted in July. All sub-indices including future and present financial situations, current and future economic conditions and major purchase indices rebounded. Interestingly, the Savings Index fell sharply, suggesting that consumers have shrugged off Brexit uncertainty and prefer to spend, and also, perhaps, that they have been influenced by the August cut in interest rates.

On the basis of this evidence, it is increasingly likely that the UK will avoid entering a recession. Going forward, the road may be bumpier, but a favourable macro backdrop for consumers, including a tight labour market and high levels of job vacancies, should remain supportive to overall activity.

Author

Janet Mui

Janet Mui

Global Economist

Janet is an Economist working in the Investment Strategy Team and a CFA charterholder. She joined in 2011 and previously worked in Citi Hong Kong as an analyst in Global Portfolio Management and subsequently as a relationship manager to multi-national clients. Janet graduated with a BSc in Economics from the London School of Economics (first class honours), holds an MBA in Finance from the University of Cambridge and obtained a Postgraduate Certificate in Econometrics from Birkbeck College, University of London.

This article is issued by Cazenove Capital which is part of the Schroder Group and a trading name of Schroder & Co. Limited, 12 Moorgate, London, EC2R 6DA. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. 

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All data contained within this document is sourced from Cazenove Capital unless otherwise stated.

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