Fall in retail sales nothing to worry given December's sharp rise - EY ITEM Club

21 February 2014

  • Share
  • January’s fall in retail sales is nothing to worry about given December’s sharp rise
  • We expect slightly more subdued growth in the coming months
  • Disappointing public finances data sends us into the Budget on a downbeat note

Andrew Goodwin senior economic adviser to the EY ITEM Club, comments on the retail sales and public finance figures

“January’s sharp fall in retail sales was inevitable after the remarkable strength in December. Averaging across the two months, the performance over the festive period was pretty strong, and better than the company results had suggested.

“However, the growing fatigue of the consumer is expected to translate into weaker retail sales in the next few months. Spending power remains under pressure and there is a limit to the degree to which consumers can finance spending through saving less. With net trade showing only modest signs of improvement and companies continuing to shy away from new investments, GDP growth is likely to slow in the first half of 2014. But a pickup in real wages should give the consumer a second wind in the second half of 2014.”

On the public finances:

“A disappointing outturn which seems to reflect very low receipts from self-assessment. Given that a sizeable chunk of the revenue comes in after the self-assessment deadline, it is quite possible that this weakness will reverse next month, but this does send us into the Budget on a somewhat downbeat note.

"Taking a broader look, it is clear that the public purse has benefitted from improved economic activity. Given the tendency for revisions to improve the state of the public finances over time, we still expect the Government to bring in borrowing close to the OBR’s full-year forecast.”