Press release

22 Sep 2023 London, GB

Retail sales in August made up only some lost ground – EY ITEM Club comments

Drier weather in August helped contribute to retail sales volumes rising 0.4%. But this reversed only a minority of July’s significant fall and offered another indication that the economy will see probably only sluggish growth in Q3.

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  • Drier weather in August helped contribute to retail sales volumes rising 0.4%. But this reversed only a minority of July’s significant fall and offered another indication that the economy will see probably only sluggish growth in Q3. 

  • With the full effect of a substantial rise in interest rates still building, the EY ITEM Club thinks retail growth is likely to remain soft. But, as with the wider economy, a serious downturn should be avoided. Falling inflation and still-strong growth in cash pay mean real wages have started to rise again. And a growing sense that interest rates have peaked following the Monetary Policy Committee's (MPC) decision to hold rates in its latest meeting should support consumer sentiment.    

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “The fact that August didn’t repeat the previous month’s unseasonably wet weather looks to have supported the retail sector in late summer. Food and non-food sales rose, as footfall returned to more normal levels. But declines in online and fuel sales restricted the rise in total retail volumes in August to 0.4% month-on-month, offsetting only part of July’s downwardly-revised 1.1% fall.  

“This left underlying three-month-on-three month growth in sales at 0.3%, suggesting that retail should make a positive contribution to GDP growth in Q3. But with the impact of higher interest rates continuing to build, retail growth in Q3 is likely to be sluggish, in line with the wider economy. 

“However, while the EY ITEM Club thinks the interest rate factor means the outlook for retailers is a soft one, the sector should enjoy enough supports to avoid a serious downturn. Falling inflation alongside still-strong growth in cash pay mean real wages have started to rise again, following a sustained decline during 2022 and early 2023. And a growing sense that interest rates have peaked following the MPC's decision to pause rates in its latest meeting should support consumer and business sentiment. Indeed, a second consecutive monthly rise in the GfK measure of consumer confidence in September, taking it to the highest since January 2022, suggests that consumers’ spirits are proving surprisingly resilient.”