- Retail sales volumes fell 3.8% month-on-month in November, the first decline for seven months, as they were affected by the English lockdown. However, the decline was substantially less than was seen in April following the first lockdown
- November’s decline was limited by a strong pick-up in online sales with the share of online sales as a share of the total rising to 31.4% from 28.6% in October and 74.7% year-on-year
- November’s fall in retail sales was also likely limited by healthy spending in supermarkets and other essential retailers and seemingly some diversion of spending away from the lockdown-affected hospitality and leisure sectors. There were reports of early Christmas purchases and home DIY lifting household goods sales
- Clothing sales and carpets & floor coverings were among the weakest sectors
- Non-essential retailers will be hoping that they are able to make up for lost sales in December as the critical Christmas shopping period peaks
- Retail sales may be limited by consumer caution over COVID-19 and weakened consumer fundamentals, notably increasing unemployment and limited earnings. On the positive side, low inflation should be supportive purchasing of power while many consumers improved their financial position in Q2 when the household savings ratio rose to a record 29.1%
- The relatively limited fall in retail sales in November – especially compared to the impact on April’s sales of the March lockdown – reinforces belief that the UK economy has shown considerable resilience in Q4. However, the bounce back in December is set to be limited by continuing restrictions on activity
- The EY ITEM Club forecasts Q4 GDP contraction to be limited to around 1.5% quarter-on-quarter. This would mean an overall GDP contraction of 11.1% over 2020. This compares to GDP contracting 19.8% quarter-on-quarter in Q2 after the March lockdown.
Howard Archer, chief economic advisor to the EY ITEM Club, says:
“Retail sales volumes fell 3.8% month-on-month as they were significantly affected by the closure of non-essential retailers as part of the English lockdown that lasted from 5 November to the start of December. The consensus forecast had been retail sales volumes to fall 4.2% month-on-month in November.
“The Office for National Statistics (ONS) said reported that in November clothing sales volumes fell 19.0% month-on-month. There was also a fall of 16.6% in fuel sales.
“The only sectors to see monthly sales growth in November were food stores (3.1%) and household goods stores (1.6%). There were reports from retailers that earlier purchases of Christmas presents and home DIY goods had boosted household goods sales.
“November’s figure was the first decline in retail sales volumes for seven months and followed a robust gain of 1.3% month-on-month in October. Retail sales have been supported in recent months by the release of pent-up demand following the first lockdown. While consumer fundamentals have weakened amid rising unemployment and limited earnings, the furlough scheme has provided appreciable support. Additionally, the household savings ratio reached a record high of 29.1% in the second quarter, increasing the purchasing power of many consumers.
“Despite falling month-on-month, retail sales volumes were still up 2.4% year-on-year in November, although this was a slowdown from a gain of 5.8% year-on-year in October. Retail sales volumes in November were still 2.6% above February’s pre-lockdown level .
“It is notable that November’s fall in retail sales volumes was substantially less than 18.2% month-on-month fall in April that followed the 23 March lockdown.
“November’s decline in sales volumes was limited by a marked pick-up in online sales, robust spending in supermarkets and other essential retailers and seemingly some diversion of spending away from the hospitality and leisure sectors as they were closed or limited in their operations.
“Online sales as a share of total retail sales rose to 31.4% in November from 28.6% in October and 27.5% in September. Online sales were up 74.7% year-on-year in November.
“The share of online sales had previously trended back down to 27.5% in September from a record high of 33.3% in May, but had remained well above a share of 20.0% in February. The indication is that restrictions on non-essential retailers have given extra impetus to an already rising underlying trend for online sales.
“The annual retail sales deflator fell 1.8% year-on-year in November, with fuel prices down 9.5% year-on-year. Excluding fuel prices, the annual retail sales deflator was down 1.2% year-on-year in November.”
Howard Archer adds: “Non-essential retailers will be hoping that they are able to make up as much as possible for lost sales in December as the critical Christmas shopping period peaks. There will be concern that shopper footfall could be held back by consumer caution over COVID-19. Latest data from Springboard show that shopper footfall across all UK retail destinations was up 19.5% week-on-week in the week to 12 December but was still down 29.9% year-on-year.
“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 supportive to purchasing power while many consumers improved their financial position in the second quarter when the household savings ratio rose to a record 29.1%.
“The fundamentals for consumers are likely to be pressurised in the near term at least. The unemployment rate has been trending up at an increased rate recently – it was 4.9% in the three months to October – and it still looks likely to rise markedly further despite the furlough scheme’s extension to April. 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.”