Boost to retail sales is likely to be temporary - ITEM Club

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

  • Robust increase in retail sales was mainly due to a combination of one-off factors
  • Prices eased considerably, reflecting lower global commodity prices and ongoing discounting by struggling retailers
  • The fundamentals underpinning consumer spending are still unsupportive and the boost in retail sales is likely to be temporary

“The robust increase in retail sales was broadly in line with expectations and is mainly the result of a combination of one-off factors. It partly reflects a catch-up effect from exceptionally weak sales in April and the warm weather in May which boosted the sales of clothing and footwear. Survey data suggests that much of the increase in sales volumes was seen in the final week of May when the weather improved.
 
“Sales volumes were also supported by a considerable easing of prices. On one hand, this is encouraging as it reflects the impact of lower global commodity prices, but it also points to ongoing discounting by struggling retailers, which is an unsustainable strategy.
 
“Overall, the boost in retail sales is likely to be temporary. The fundamentals underpinning consumer spending are still unsupportive. Unemployment is elevated well above historical norms, with the gradual improvement in the labour market over the past few months now starting to wane. Although inflation has been easing at a rapid pace, with wage growth lagging behind the inflation rate, 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.”