The struggle for retailers is far from over, says ITEM Club

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

  • Monthly growth of 1.8% is much stronger than expected and most likely a result of the unusually warm weather in March 
  • Fundamentals underpinning consumer spending are still weak and the struggle for retailers is far from over 
  • However these figures bode well for next week’s GDP release and provide further evidence that we will probably avoid a technical recession in Q1 

“We suspected that retail sales in March would be robust, after the disappointment of February, however monthly growth of 1.8% is much higher than we had expected and certainly a welcome surprise. Nevertheless, that growth is driven by sales of clothing and footwear suggests that this is largely down to the unusually warm weather in March, rather than the start of a stronger trend. We would be surprised if this strength persisted in the months ahead.
 
“The fundamentals underpinning consumer spending are still unsupportive. The labour market is weak, wages are falling in real terms and households are heavily indebted. With tensions in the Middle East keeping oil prices elevated, it looks as if inflation will remain higher for longer, which will exacerbate the pressure on household finances. As such, the March figures may provide some brief respite from a long struggle for retailers.
 
“However these figures bode well for next week’s GDP release and provide further evidence that we will probably avoid a technical recession after all. We expect GDP to post a small increase in Q1, with consumer spending looking set to contribute positively to growth.”