- A second successive strong outturn for retail sales in November suggests that consumer spending was in decent shape before the Omicron variant emerged.
- In the near term, retail sales might see a temporary boost from consumers diverting funds they would otherwise have spent on social consumption. But spending power is increasingly being squeezed by high inflation.
Martin Beck, chief economic advisor to the EY ITEM Club, says:
“Retail sales surprised on the upside for a second successive month, rising by 1.4% month-on-month (m/m) in November. As in October, the strength was mainly concentrated in non-food stores, with clothing sales particularly strong. Fuel sales also made a significant contribution – petrol sales had been weaker in October, as motorists had less need for fuel after the supply chain issues at the end of September meant many had stocked up. November saw sales return to more normal levels. a. November saw sales return to more normal levels.
“The share of sales conducted online fell to its lowest level since the pandemic began, adding to evidence that consumer behaviour was increasingly normalising before the Omicron variant emerged.
“The short-term outlook for the retail sector is uncertain. Household spending power is increasingly coming under pressure from rising inflation, while the rise in COVID-19 cases caused by the Omicron variant will reduce footfall. On the flip side, the experience of previous COVID-19 waves suggests that when consumers spend less on social consumption activities, they tend to spend more on buying goods from the retail sector, particularly online. So there’s a good chance that while consumer spending growth will weaken around the turn of the year, retail sales might see another short-term boost.
“However, with retail sales now 7.2% above their pre-pandemic levels, it’s likely that spending patterns will resume their rotation back towards social consumption, and away from retail, once the Omicron wave has passed.”