A predictable bounce back in retail sales masks underlying weakness – EY ITEM Club comments

• Retail sales volumes rose 0.6% month-on-month in October, with the rebound in sales appearing to be entirely down to the comparison with September, when the extra bank holiday had a significant effect. The retail sector's rebound reinforces the EY ITEM Club’s expectation that there was a similar month-on-month rise in GDP in October.
• However, October's rebound is likely to prove temporary respite for both the retail sector and the wider economy. The squeeze on real incomes is likely to continue well into next year, leading to renewed falls in retail sales and GDP.

Martin Beck, chief economic advisor to the EY ITEM Club, says: “The general downward trend in retail sales volumes since the start of the year was halted in October as sales volumes rose 0.6% month-on-month. The breakdown of October's data showed that the increase was broad-based, with all major retailing categories apart from food stores experiencing higher sales.

“However, October's rebound seemed to be entirely due to September's outturn being decreased by the extra bank holiday. Many retailers – including large supermarkets – closed for the day of the Queen’s funeral, creating a favourable base effect for October. This pattern is likely to have been replicated across the services sector, so the EY ITEM Club expects there was a decent month-on-month rebound in GDP in October too.

“However, the fact that retail sales in October were still 0.9ppts below August's level demonstrates the extent to which the retail sector is struggling. The UK consumer outlook continues to face a range of headwinds – including inflation continuing to run well ahead of wages and increasing mortgage costs – and these will likely weigh on spending power well into next year. Therefore, October's rebound is likely to prove temporary respite, and the EY ITEM Club expects retail sales to resume their descent in the coming months.”