- Retail sales volumes fell 0.3% month-on-month in February, and were only flat year-on-year - the weakest annual reading since March 2013. This indicates that consumers were being cautious in their spending even before coronavirus started to impact activity and the economy. The ONS said the February data is “largely unaffected” by recent developments with the coronavirus apart from a small number of retailers.
- February’s dip in retail sales adds to the evidence that the economy was struggling for momentum early on in 2020, despite the marked pick-up in business and consumer confidence following December’s decisive General Election result. It was also despite decent looking fundamentals for consumers. Employment rose strongly to reach a record high in the three months to January while real earnings growth was a respectable 1.5%.
- However, this has now changed with the impact of coronavirus on every-day life and the economy.
- Apart from the food sector, the retail picture looks gloomy and is likely to remain so over the next few months at least, with most retailers now closed. Online sales will likely come increasingly to the fore, but they can only make up a limited amount of the lost business.
- The near-term fundamentals for consumer spending have clearly taken a very substantial downturn as a result of coronavirus. Some people have already lost their jobs (as is evident from the reported surge in the numbers registering for universal credit). Additionally, some consumers may still be concerned about their job security and income prospects despite the Government’s supportive measures. This is reflected in the IHS Markit household finance index falling to 42.5 in March from a survey high of 47.6 in Feb with job security the weakest for eight years. The survey showed the appetite for major purchases reached the weakest level since December 2012.
- Consumers are highly likely to adopt a much more cautious approach to discretionary purchases given the current environment and, on top of this, many are restricted in their ability to get to the shops.
- Consumer spending is expected to fall in the second quarter, which will be a significant contributory factor to an anticipated contraction in GDP.
Howard Archer, chief economic advisor to the EY ITEM Club, comments:
"Retail sales volumes dipped 0.3% month-on-month in February, causing them to be only flat year-on-year. This was the weakest annual performance since March 2013. Excluding fuel sales, retail sales volumes fell 0.5% month-on-month in February and were up 0.5% year-on-year.
"Retail sales had previously risen 1.0% month-on-month in January (1.6% excluding fuel sales – the best performance since May 2018) after a very poor fourth quarter of 2019 when they fell 0.9% quarter-on-quarter.
"The underlying softness in retail sales was evident in them being down 0.6% in the three months to February compared to the three months to November.
"Sales in non-food stores edged up 0.1% month-on-month in February but were down 0.6% year-on-year. Sales of household goods were the strongest, rising 0.8% month-on-month, although they were only up 0.2% year-on-year. Textiles and clothing sales edged up 0.2% month-on-month and were up 1.1% year-on-year.
"Sales at department stores fell 1.0% month-on-month and 3.6% year-on-year in February.
"Non-store retailing fell 2.8% month-on-month but was up 4.2% year-on-year. This was partly attributed to very wet weather affecting sales at markets and stalls. “Food sales fell 0.4% month-on-month and were up just 0.6% year-on-year in February. Fuel sales rose 1.4% month-on-month but were down 3.9% year-on-year.
"The annual retail sales deflator fell back to 0.5% in February after rising to a 13-month high of 1.1% in January from 0.3% in December and November, from just 0.1% in October, which was the lowest level since October 2016. Excluding fuel prices, the annual retail sales deflator dipped to 0.2% in February to a six-month high of 0.7% in January from 0.3% in December."