- Retail sales fell for a fourth successive month in August, as spending patterns continued to normalise. Greater opportunities for social consumption has meant less spending in the retail sector, although sales are still well above pre-pandemic levels and performing much better than the economy as a whole.
- The extent to which the retail sector outperforms the wider economy is likely to narrow further as we move through the second half of 2021 and spending patterns continue to normalise. But the EY ITEM Club thinks the strong backdrop for consumer spending is more consistent with a stabilisation in retail sales, rather than further falls.
Martin Beck, senior economic advisor to the EY ITEM Club, says:
“Retail sales fell by 0.9% month-on-month in August, the fourth successive monthly decline. All of the sub-sectors saw sales declines in August, with the exception of automotive fuel. The fall came as a surprise given that both footfall and debit and credit card spending had improved that month, after July had seen activity disrupted by a significant rise in COVID-19 cases.
“That sales have continued to fall is likely to reflect the continued normalisation of spending patterns, with retail demand negatively affected in the face of greater opportunities for social consumption, particularly since most remaining restrictions were lifted on 19 July. But retail sales are still 4.6% above pre-pandemic levels, which represents a much better performance than both broader measures of consumer spending and the wider economy.
“Looking forwards, the normalisation of spending patterns is likely to remain a key theme. But there should be some mitigation from the fact that the environment for consumer spending is very positive, with no restrictions on domestic mobility, household incomes resilient, and some consumers sitting on large levels of excess savings. So, while the extent to which the retail sector outperforms the wider economy should continue to narrow in H2 2021, the EY ITEM Club expects this to mean that retail sales stabilise, rather than continue to fall.”