Retail sales figures are a dismal result and point to underlying weakness in the retail sector, says ITEM Club

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

  • A dismal result for retail sales in June pointing to underlying weakness in the retail sector
  • The fundamentals underpinning consumer spending are still unsupportive so conditions in the near term remain tough
  • These results provide further evidence that GDP probably fell in the second quarter

“A dismal result for retail sales in June and the figures are at odds with survey data which suggested that sales in June were lifted by the Jubilee celebrations. Although the weak results are partly down to the wet weather in June, the release also contains signs of underlying weakness in the retail sector. In particular, it is concerning that heavy discounting by retailers did not support sales volumes more.
 
“These results are in line with the state of the wider economy. The fundamentals underpinning consumer spending are still unsupportive. Despite signs of improvement in the labour market, unemployment is elevated and well above historical norms. Though inflation is starting to ease rapidly, wage growth is still lagging some way behind the inflation rate, so consumers continue to face declining real incomes. We expect these conditions to improve gradually as the economy recovers, but for the moment wider economic developments continue to point to subdued retail sales at best.
 
“This release does not bode well for overall growth and provides further evidence that GDP probably fell in the second quarter.”