Press release

24 Jul 2020 London, GB

UK retail sales saw second month of significant improvement in June – EY ITEM Club comments

Retail sales volumes saw further improvement in June after coming well off their April lows in May, as they benefitted from non-essential retailers being allowed to open in England from the middle of the month.

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  • Retail sales volumes saw further improvement in June after coming well off their April lows in May, as they benefitted from non-essential retailers being allowed to open in England from the middle of the month
  • Retail sales volumes rose 13.9% month-on-month in June; this followed a rebound of 12.3% month-on-month in May after volumes had contracted a record 18.0% in April when the lockdown was fully in force through the month. The year-on-year drop in retail sales volumes narrowed to just 1.6% in June from 13.0% in May and a record 22.8% in April
  • Retail sales volumes in June were only 0.6% below their February level
  • Online sales largely maintained their recent increased share of total retail sales in June, despite non-essential retailers being allowed to open. Online sales as a share of total retail sales only dipped to 31.8% in June after rising to a new record high of 33.3% in May from 30.7% in April. This compares to a share of 20.0% in February
  • Despite June’s improvement, retail sales volumes contracted a record 9.5% quarter-on-quarter over the second quarter. The EY ITEM Club suspects that consumer spending contracted around 20% quarter-on-quarter in the second quarter, thereby being a major factor in a likely record quarter-on-quarter GDP contraction
  • Despite the pick-up in retail sales in June, there is uncertainty as to just how willing consumers will be to spend over the coming months
  • While consumer spending is expected to play a significant role in the economy’s recovery from the third quarter, the EY ITEM Club suspects that the upside will be constrained by cautious consumers, higher unemployment and limited pay
  • On the positive side, very low inflation should provide some support to spending. Additionally, three months of net repayment of unsecured consumer debt totalling £15.8 billion over March–May has improved many households’ balance sheets, which will help some consumers’ purchasing ability

Howard Archer, chief economic advisor to the EY ITEM Club, says:

“Retail sales volumes increased 13.9% month-on-month in June as they benefitted from non-essential retailers being allowed to open in England from the middle of the month. The year-on-year decline in retail sales volumes moderated to just 1.6% in June from 13.0% in May and a record 22.8% in April.

“June’s increase in retail sales volumes built on May’s decent rebound from April’s deep low. Garden centres and homeware shops being allowed to open in England from the middle of the month had helped retail sales volumes rise 12.0% month-on-month in May after falling a record 28.0% in April when sales had been affected by the full impact of the lockdown restrictions imposed on 23 March. This notably included the closure of the entire retail sales sector except for essential retailers.

“Despite June’s improvement, retail sales volumes contracted a record 9.5% quarter-on-quarter over the second quarter. We suspect that consumer spending contracted by around 20% quarter-on-quarter in the second quarter, thereby being a major factor in a likely record quarter-on-quarter GDP contraction.

“Retail sales excluding fuel were up 13.5% month-on-month in June and up 1.7% year-on-year. There was some pick-up in fuel sales as a further easing of the lockdown led to a modest increase in private transport journeys. Fuel sales rose 21.5% month-on-month in June but were 30.3% lower than in February.

“Online sales largely maintained their recent markedly increased share of total retail sales in June despite non-essential retailers being allowed to open. Online sales as a share of total retail sales only dipped to 31.8% in June after rising to a new record high of 33.3% in May from 30.7% in April. This compares to a share of 20.0% in February.

“Non-store retailing rose 1.1% month-on-month in June and were 53.6% higher than they had been in February.

“Sales of non-food stores jumped 45.5% month-on-month in June reflecting the opening of non-essential retailers in England from mid-month. However, volumes were still 15.0% below their February levels.

“Food sales edged back 0.1% month-on-month in June but remained at elevated levels and volumes were 5.3% higher than they had been in February.

“The annual retail sales deflator fell 1.5% year-on-year in June, with fuel prices down 15.4% year-on-year. This was similar to a drop of 1.5% year-on-year in May when fuel prices were down 15.7% year-on-year.

“Excluding fuel prices, the annual retail sales deflator edged up just 0.1% in June as it had in May.

Outlook

Howard Archer adds: “The retail sector should benefit from a further significant easing of lockdown restrictions in July with pubs, restaurants, hotels and hairdressers allowed to open conditionally in England, along with a number of other leisure facilities and venues such as theme parks, cinemas, museums and galleries. The social distancing rule was also relaxed from two metres to “one metre plus”.

“However, there is uncertainty as to just how willing consumers will be to spend over the coming months. Indeed, persistent consumer caution is seen as a significant risk that could limit the UK recovery.

“While there does seem to have been some pick-up in consumer spending in July, it also appears that consumers are cautious amid heightened job insecurity. Springboard reported shopper footfall rose 4.5% in the week to 18 July from the previous week, which was less than half the rise of 10.6% that occurred during the first week following the reopening of hospitality and leisure businesses in England on 4 July. Nevertheless, the year-on-year drop in shopper numbers slowed to 40.2% in the week to 18 July, which was the smallest annual decline since the lockdown was imposed. Meanwhile, the IHS Markit household finance index rose to a four-month high of 41.5 from 40.7 in June (and an eiqht-and-a-half year low of 34.9 in April); within this, the spending index improved to 41.6 from 37.8, but this was reported “still much lower than at any time in 11 years of survey data prior to the coronavirus disease 2019 (COVID-19) pandemic. Households appeared focussed on reining in debt and supporting their savings where possible.””

Howard Archer continues: “The current fundamentals for consumer spending have taken a downturn as a result of coronavirus, and they are likely to remain under pressure in the near term at least. Many people have already lost their jobs despite the supportive government measures – as was highlighted by employment falling by 649,000 over April-June (according to Pay as You Earn Real Time Information data) – while others will be worried that they may still end up losing their job once the furlough scheme ends in October.

“Additionally, many incomes have been affected; latest ONS data show average earnings fell 1.2% year-on-year in May. The only recent good news for consumers was inflation being limited to 0.6% in June (it was even lower at 0.5% in May, the lowest level since June 2016). The EY ITEM Club suspects that inflation could get down to 0.1% over the next few months. Even so, ONS data show that real earnings fell 1.9% year-on-year in May itself and were down 1.3% year-on-year in the three months to May.

“Furthermore, consumers are highly likely to adopt a cautious approach to discretionary purchases given the uncertain economic environment. Consumer confidence currently remains at a relatively low level despite coming off recent long-term lows. On top of this, ongoing concerns over coronavirus may limit shopper footfall.

“On a positive note, three months of net repayment of unsecured consumer debt totalling £15.8 billion over March–May has improved many households’ balance sheets, which will help some consumers’ purchasing ability.”