Retail sales: what the analysts say

Retail sales grew by just 0.2% in July, underscoring the fragility of the UK economy. Here is what analysts made of the figures. Richard Lowe, head of retail & wholesale at Barclays Corporate July's retail sales figures show that trading remains tough, with volumes unchanged on the previous year. However, for retailers, the performance of the high street last month has been overshadowed by the more recent riots, looting and arson which swept through many of our largest towns and cities. It is too early to say what the financial cost will be to the retail sector but, one early indication from a number of retailers is that we can expect to see a rise in online sales as consumers chose to shop from the safety of their homes. The retail environment remains challenging as confidence continues to struggle on European and US sovereign debt concerns but, retailers continue to offer deep discounts to tempt consumers onto the high street. Philip Rush, UK economist, Nomura Retail sales have been jostled by numerous sizeable shocks, such as bad weather, VAT changes, the Royal Wedding, and the added budget squeeze caused by payments for Olympic tickets. With each "one-off" shock also carrying payback effects, the month-to-month volatility in retail sales has been unusually large given the weak underlying trend. But July's sales data were unusually clean and show volume data to be growing at 0.2% m-o-m. While this growth is hardly brisk, it is growth nonetheless. Within the details, this growth was driven almost entirely by food store sales, where inflation subsided in July. Elsewhere, large price increases continue to squeeze household budgets. So the ongoing strength in the value of retail sales, which rose by 0.8% month-on-month, 4.3% year-on-year in July, is merely consumed by higher prices rather than volumes. With the current scenario's stagflationary synergies, households need to run just to stand still. With large utility price hikes being implemented between August and October, the squeeze on household budgets still has further to run. Poor confidence, exacerbated by global pressures, is also likely to urge spending restraint by households. We expect private consumption to continue to grow weakly for at least the next few quarters, before support from lower inflation and a return to stronger employment growth takes hold. Samuel Tombs, UK economist, Capital Economics July's retail sales figures are perhaps a bit of a relief, given the intensity of the squeeze on households' real incomes, but are hardly a picture of strength. In addition, rising spending on the high street (which only accounts for around 40% of overall household spending) may simply have been at the expense of spending off it. Looking ahead, we doubt that retail sales will continue to rise given the recent sharp falls in consumer confidence, increases in unemployment and intensifying squeeze on consumers' real incomes. James Knightley, UK economist, ING Essentially retail sales are flat lining at the moment, which is unsurprising given confidence is so weak and household finances are so heavily strained. This story is unlikely to change soon. However, we are more optimistic as we head into 2012. Nominal wages are picking up and if inflation falls as we expect next year we could see the first increase in real wages for 4 years. There is a big increase in the tax free allowance next year as well while compensation payments from the miss-selling of payment protection insurance (up to £7bn worth) will also help. It is also important to remember that despite the focus on unemployment, employment has actually been rising though the year and employment intention surveys remain encouraging. This all has the potential to improve household finances over the next twelve months, which should support confidence and therefore, hopefully, prompt an improvement in sending growth.