End of 2016 may well herald the high point for the retailers - EY ITEM Club comments

15 December 2016

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  • Retail sales see surprise growth in November…
  • …putting Q4 on track to deliver a very strong performance
  • But return to inflation in shop prices delivers a sting in the tail

Martin Beck, senior economic advisor to the EY ITEM Club, comments:

“After October’s surge in retail sales volumes, shoppers may have been forgiven for pausing for breath. However, aided by “Black Friday” discounts, volumes rose further in November, increasing by 0.2% on the month and leaving annual growth at 5.9%. Among the retail’s different component, food and clothing volumes both dropped on a monthly basis. But this was more than compensated for by growth in other areas, particularly department store sales.

“November’s results set the fourth quarter up to deliver a very strong performance from the retail sector. Even if volumes were to stagnate in December, quarterly growth would run at 2.1% and contribute around 0.1% to GDP growth.

“However, the latest numbers delivered a sting in the tail. Shop prices in October rose by 0.1% on a year earlier, the first month since June 2014 to see a rise and a dramatic turnaround from November 2015, when prices were falling by 3.2%. Given surging input costs on the back of sterling’s weakness, retail price inflation seems set to accelerate. With pay grow still struggling to pick up from its current subdued pace, shoppers are set to see their spending power squeezed. So the end of 2016 may well herald the high point for the retailers, with next year set to see a slowdown.”