2.3% decline in retail sales is a dismal start to Q2, racking up pressure on the BoE to ease monetary policy - ITEM Club
Nida Ali, economic advisor to the EY ITEM Club, comments on today’s retail sales figures:
- The sharp drop in retail sales is surprising
- The fundamentals underpinning consumer spending are still unsupportive and conditions on the high street remain challenging
- These figures don't bode well for growth in Q2 and rack up the pressure on the Bank to ease monetary policy further
“Although we had expected a weak retail sales performance in April, after the strength in March, a monthly decline of 2.3% is a real disappointment. There are clearly important one-off factors, such as April's unusually cold and wet weather which depressed sales of clothing and footwear, and there was always likely to be some payback from the panic buying of petrol in March. However, the overall picture is one of underlying weakness in consumer spending with spending broadly flat since the autumn.
“The fundamentals underpinning consumer spending are still unsupportive. Despite signs of improvement in the labour market, unemployment remains much higher than historical norms. Similarly, while inflation eased significantly in April, with wage growth remaining muted, consumers continue to face declining real incomes. We do expect these conditions to improve gradually as the economy recovers, but for the moment conditions remain tough.
“This is a dismal start to the second quarter and these figures certainly don't bode well for growth in Q2, particularly given that the overall figure is already likely to be distorted by the extra Bank holiday in June. Although the Bank of England chose to keep monetary policy unchanged in May, these figures will rack up the pressure on the Bank to ease monetary policy further in order to promote growth.”