Retail sales figures are 'bolt from the blue' says ITEM Club - EY - United Kingdom

Retail sales figures are 'bolt from the blue' says ITEM Club

Nida Ali, economic advisor to the Ernst & Young ITEM Club, comments on today’s retail sales figures:

• These figures are a bolt from the blue and are at odds with recent survey data
• Heavy discounting still seems to be the main driver behind strong sales volumes
• The fundamentals underpinning consumer spending are still weak and the struggle for retailers is far from over

“These figures are a bolt from the blue and are at odds with the much softer survey data. The 0.9% monthly increase in retail sales was unexpected, especially on top of the strong rise in December. There is always a big question mark over the December and January figures because of the huge seasonal effects, so we do treat these figures with a degree of caution.
 
“Heavy discounting still seems to be the main driver for the rise in sales, with retailers continuing to slash prices to sustain market share. This is clearly an unsustainable strategy and it is difficult to see these sort of growth rates being sustained.
 
“It will be interesting to see how these figures affect GDP in Q1. GDP fell in 2011Q4, despite a sharp rise in retail sales, but this latest set of data must further reduce the chances of a second successive decline in GDP in Q1.
 
“The fundamentals underpinning consumer spending are still weak. Wage growth is sluggish, unemployment is on the rise and households are heavily indebted. With inflation now starting to cool, the pressure on individuals' incomes is likely to ease, but it will be a long time before real incomes actually start to increase. The struggle for retailers is far from over.”