Consumers put retail spending on hold, while decline in public borrowing is unlikely to last - EY ITEM Club comments

21 July 2016

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  • Retail sales drop in June…
  • …but Q2 still delivers a strong performance
  • Public borrowing sees a larger than expected decline, but a weakening economy means this is unlikely to last

Martin Beck, senior economic advisor to the EY ITEM Club, comments:

“Retail sales volumes fell in June suggesting that Brexit-related uncertainty may have finally started making its presence felt among consumers. The strength of the retail sector in April and May, however, had already pointed to some retrenchment in June.

“Uncertainty stemming from June’s vote to leave the EU may cause some retail spending to be put on hold. On a more positive note, consumer sentiment may see some recovery now that a measure of political stability has been restored and if some of the predictions around the economic consequences of Brexit prove to be overblown.  

 “A closer look at the performance of the different components of the retail sector suggests that June’s terrible weather played a role in pushing down purchases. Both food and clothing sales saw sharp drops. Moreover, strength in April and May meant that June’s drop in overall volumes didn’t stop Q2 as a whole putting in a strong performance. The quarter saw growth of 1.6%, compared to the 1.2% recorded in the first three months of the year, delivering the best quarterly performance since Q4 2014.”

Public borrowing

“Following a run of disappointing outturns for public sector borrowing in recent months, June’s figures surprised with a larger than expected fall in the deficit. June’s improvement means that public borrowing in 2016-17 to date is now running £2.3bn or 8% below the £27.9bn borrowed in the first three months of 2015-16.

“But for the OBR’s full-year forecast to be met, borrowing will have to decline by 26% in the current fiscal year. This had looked a stretching goal and, with the economy likely to see a slowdown in the second half of this year, it now appears impossible. It is not surprising that the Government has already decided to put its deficit reduction ambitions on ice.”