- Retail sales volumes performed well above expectations in October, rising 1.2% month-on-month; this was a sixth successive gain. Retail sales volumes were up 5.8% year-on-year and were 6.7% above February’s pre-lockdown level
- The retail sector is likely to have been modestly affected by the closure of non-essential retailers in Wales from 23 October, but otherwise increasing restrictions that were imposed during the month due to rising COVID-19 cases should have had relatively little negative impact
- Retail sales may have been lifted modestly by people stockpiling ahead of the national lockdown in England that started on 5 November. Some people may have also started making early Christmas purchases
- Online sales as a share of total retail sales remain significantly higher than they were before the pandemic. They rose back up to 28.5% and will be lifted in the near term by the current closure of non-essential retailers in England
- Retail sales will certainly be negatively affected in November by the closure of non-essential retailers as part of the national lockdown measures in England. While online sales will likely increase in November, this will not fully compensate by some distance
- Non-essential retailers will be hoping that they are able to open in December and benefit as much as possible from Christmas shopping. Even if they are able to open during December, footfall may be held back by consumer caution over COVID-19
- Retail sales may also be limited in the near-term at least by weakened consumer fundamentals, notably increasing unemployment and limited earnings
- On the positive side, low inflation should be support purchasing power while many consumers significantly improved their financial position in Q2 when the household savings ratio increased to a record 29.1%
Howard Archer, chief economic advisor to the EY ITEM Club, says:
“Retail sales volumes were much stronger than expected in October, rising 1.2% month-on-month. The consensus forecast had been for a flat performance. This was a sixth successive monthly gain in retail sales volumes (including a rise of 1.3% in September), taking them up 5.8% year-on-year. They were also 6.7% above February’s pre-lockdown level.
“The underlying healthy performance in retail sales was highlighted by volumes being up 8.9% in the three months to October compared to the three months to July.
“Retail sales have been supported in recent months by the release of pent-up demand following the end of the re-opening of non-essential retailers in mid-June. While consumer fundamentals have weakened amid rising unemployment and limited earnings, the furlough scheme has provided appreciable support. Additionally, the household savings ratio rose to a record high of 29.1% in the second quarter, increasing the purchasing power of many consumers.
“There may have been a modest lift to retail sales from people stockpiling ahead of the national lockdown that started on 5 November in England. There were some reports of people making early Christmas purchases.
“The retail sector would have been modestly affected by the closure of non-essential retailers in Wales from 23 October, but otherwise increasing restrictions being imposed during the month should have had relatively little negative impact.
“The ONS reported that October’s “growth in the volume of sales for non-store retailing at 6.4%, household goods stores at 3.2% and department stores at 3.1% all contributed to the overall monthly increase in retail sales.””
Howard Archer continues: “While the opening up of the retail sector from mid-June led to some decline in online sales’ share of total sales from the record high seen in May, they remained significantly above the levels seen before COVID-19 first started to have an impact. The strong suspicion is that there will have been some permanent shift towards online sales.
“Online sales as a share of total retail sales rose back up to 28.5% in October after falling to 27.5% in September from 28.1% in August, 28.9% in July, 31.8% in June and a record high of 33.3% in May. This is still well above a share of 20.0% in February. Furthermore, the share of online retail sales in total sales will clearly be lifted in the near term by the current closure of non-essential retailers in England.
“The annual retail sales deflator fell 0.9% year-on-year in October, with fuel prices down 9.6% year-on-year. Excluding fuel prices, the annual retail sales deflator was flat year-on-year in October.”
Howard Archer adds: “Retail sales will obviously be significantly affected by the closure of non-essential retailers as part November’s national lockdown measures in England. Springboard reported that total shopper numbers across all UK retail destinations was down 57.7% year-on-year in the week to 14 November. While online sales will likely increase in November, this will not fully compensate by some distance.
“Non-essential retailers will be hoping that they are able to open in December and benefit as much as possible from Christmas shopping. Even if they are able to open during December, footfall may be held back by consumer caution over COVID-19. Gfk reported that consumer confidence reached a six-month low in November.
“Retail sales may also be limited in the near-term at least by weakened consumer fundamentals, notably increasing unemployment and limited earnings. On the positive side, low inflation should support purchasing power, while many consumers improved their financial position in the second quarter when the household savings ratio increased to a record 29.1%.
Howard Archer continues: “The fundamentals for consumers are likely to be pressurized 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 782,000 over April-October (according to Pay as You Earn Real Time Information data) – while others will be concerned that they may face redundancy in future.
“The unemployment rate has been trending up at an increased rate recently, reaching 4.8% in the three months to September, and it looks likely to rise further despite the Chancellor extending the furlough scheme until the end of March. The EY ITEM Club suspects the unemployment rate could get up to 7.0% in the first half of 2021.
“Meanwhile, earnings look set to remain limited with many companies looking to freeze pay, while furloughed workers will see their pay reduced to 80% of their full pay.”