Growth in retail sales resumed in April – EY ITEM Club comments

• Easter’s timing and Office for National Statistics (ONS) seasonal adjustment changes mean a decent rise in retail sales volumes in April should be interpreted with more care than normal. However, on the face of it, April's rise is consistent with brightening prospects for the consumer sector. 
  
• Employment is resilient, consumer sentiment is reviving, and energy bills will soon start to head down, but retailers are not out of the woods yet. Sticky inflation could hold back the hoped-for recovery in consumers' spending power and will likely prompt further rate rises from the Bank of England. And around 2.5m households face a rise in mortgage payments this year. 

Martin Beck, chief economic advisor to the EY ITEM Club, says: “After a run of growth in retail sales in early 2023 was interrupted in March, expansion resumed in April, with volumes increasing 0.5% month-on-month. The three-month-on-three-month growth rose to 0.8%, the highest since August 2021. Among retail sub-sectors, non-food stores saw the strongest turnaround from March, while fuel sales were the only major category to see a month-on-month fall.

“As a relatively volatile series, the retail numbers need to be interpreted with caution, and that's particularly true of April's data. The ONS had to make calendar adjustments to account for the timing of Easter as well as to incorporate the results of its annual seasonal adjustment review. The latter resulted in some revisions to past data, including March's fall in sales being revised bigger to -1.2% from -0.9%. 

“But notwithstanding these qualifications, April's retail performance tallies with an improving outlook for consumer spending. The jobs market is proving resilient and consumer sentiment has started to recover. And discretionary spending power will receive a boost in July, when the typical annual household energy bill will fall from £2,500 at present to £2,074 under the latest Ofgem price cap.   

“However, prospects for retailers and the wider consumer sector are far from cloud free. While inflation is falling and should continue to head down, it's proving surprisingly sticky, as April's numbers revealed. This could slow the pace at which real household incomes return to growth. And inflation worries are likely to prompt the Bank of England to continue raising interest rates, adding to the challenges faced by those with debt. On that score, 2.5m households face a rise in mortgage interest payments during 2023.”