- A rise in retail sales in June bucked predictions of a drop and regained some of May’s significant decline. But a boost to food sales linked with the start of the Euro 2020 football championship suggests temporary factors played a role.
- Looking ahead, an unwinding of COVID-19-driven changes in consumption is likely to hold back retail growth, as might a hit to sentiment from rising infections. But consumer spending is still on course for a strong rebound.
Martin Beck, senior economic advisor to the EY ITEM Club, says:
“During lockdowns, the retail sector benefited from diverted demand as consumers were unable to spend in shuttered sectors like hospitality and leisure. A fall in retail sales in May suggested that boost was unwinding, but expectations of a further drop in June were confounded by sales rising 0.5% month-on-month (m/m). This left retail volumes 9.5% above the February 2020 level. However, temporary factors may have been at work – June’s rise was driven by a 4.2% m/m rise in food sales, with the Office for National Statistics (ONS) citing anecdotal evidence of a link with the start of the Euro 2020 football championship. In contrast, non-food sales fell 1.7% m/m.
“The EY ITEM Club believes retail growth will likely be muted over the next few months, as spending on social consumption, such as eating out, continues to move back to pre-pandemic levels, aided by the removal of most remaining domestic restrictions on 19 July. The retail sector faces another potential headwind if the recent surge in COVID-19 infections damages sentiment and discourages people from physical shopping.
“That said, this could contain a silver lining were virus worries to see spending switch once again from socialising to (online) shopping. Either way, retail uncertainties shouldn’t prevent overall consumer spending from leading the recovery, driven by the removal of restrictions, the resilience of household incomes and consumers spending some of their excess savings.”