Retail figures 'don’t bode well for GDP growth in Q1', says ITEM Club

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Nida Ali, economic advisor to the EY ITEM Club comments on today’s retail sales:

  • February's fall in retail sales is unsurprising as heavy discounting was supporting sales volumes in recent months
  • These figures don't bode well for GDP growth in Q1
  • The fundamentals underpinning consumer spending are still weak and retailers continue to face challenging times ahead 

“Retail sales were very disappointing in February. But following two months of firm increases, growth in the three months to February (compared to the previous three months) is still robust at 0.7%. These figures are not surprising, as factors such as heavy discounting were supporting volumes over the past couple of months. This was clearly unsustainable and it was only a matter of time before weak economic conditions took over.
 
“Sales volumes fell in all sub-sectors, reflecting the scale of weakness in consumers' purchasing power. Moreover, with the firm increase in retail sales in January having unwound in February, this doesn’t bode well for growth 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 somewhat, but it will be a long time before real incomes actually start to increase. Many retailers have been forced to go out of business in recent months, and the challenge for retailers is not yet over.”