- A post petrol-shortage drag on fuel purchases didn’t prevent retail sales volumes rising for the first time in six months in October. A 0.8% month-on-month increase left volumes 5.8% above their level in February 2020.
- Going forward, retail growth is likely to be held back by consumer spending patterns rotating back to pre-COVID-19 norms and pressure on spending power from rising inflation and taxes. But the sector is far from out of supports.
Martin Beck, chief economic advisor to the EY ITEM Club, says:
“Consumers using up the petrol they queued to buy at the end of September didn’t help retail sales growth the following month. After petrol sales, which account for around a tenth of all retail spending, rose 3.3% month-on-month in September, October saw a 6.4% fall.
“However, the drag from this was more than offset by non-fuel retail sales rising 1.6% month-on-month. This performance left retail volumes in October up 0.8% month-on-month, the first increase since April, and 5.8% higher than the immediate pre-pandemic level in February 2020.
“Growth in total sales was driven by non-food spending, particularly clothing, which ran at 4.2% and 6.2% month-on-month respectively. But food sales dipped 0.3%.
“In the near-term, retail expansion is likely to be held back as the pandemic-related shift in consumer spending from services to goods reverses. And pressure on households’ spending power from rising inflation, higher energy costs and next April’s personal tax increases won’t help either. That said, an improvement in GfK’s measure of consumer confidence in November suggests that sentiment hasn’t yet been damaged by emerging headwinds. And with households’ balance sheets among the strongest they’ve ever been and the economy coming out of the crisis with unemployment surprisingly low, momentum in retail growth might slow, but is unlikely to run out of steam completely.”