Department stores and sports shops in the UK saw a surge in spending during July, stimulated by summer markdowns and the Euros football tournament. According to data from the Office for National Statistics released on Friday, the quantity of goods sold in-store and online saw an uplift by 0.5 per cent after a revised slump of 0.9 per cent in June. This was slightly below economists’ anticipation of a 0.6 per cent climb, however the downturn in June wasn’t as severe as the initial 1.2 per cent reported.
The data indicates a positive kick-off to Q3, following a period where in-store consumer activity applied a drag on wider economic performance during June. The anticipation that the most acute phase of the cost-of-living crunch may be in the rear view, coupled with the return of inflation closer to the Bank of England’s 2 per cent aim and businesses hiring at the greatest rate since last November, further signifies cause for hope.
“Despite some concern, there appears to be little evidence to suggest UK consumers are making substantial cutbacks,” said Charlie Huggins, who manages the quality shares portfolio at investment consultancy firm, Wealth Club. “If inflation continues to steady allowing for additional cuts to the interest rate, retailers can face the remainder of the year with some positivity.”
There is speculation that the Bank of England is set to make at least one more reduction to interest rates this year, following an initial decrease implemented on 1st August — its first in 16 years. The consumer-impact of peak double-digit inflation seen in 2022 alongside high borrowing costs, has meant that people have had to pay more for fewer purchases. This has meant that retail sales volumes are below pre-pandemic figures.
As Alex Kerr of Capital Economics highlighted, “As inflation dips, real incomes should increase, indicating further acceleration in consumer spending for the rest of the year.” Following release of this data, sterling strengthened by 0.2 per cent to $1.2880, gearing up towards its initial weekly boost in over four weeks.
Policies aimed at invigorating the economy lie at the centre of UK Prime Minister Keir Starmer’s strategy for the Labour Party, following his July 4 election victory. However, there is ongoing concern among retailers about sustained frailty in consumer spending behavioural trends.
Retail sales saw a healthy increase of 0.7 per cent when fuel was taken out of the equation, coming out stronger than the economist’s anticipated growth rate of 0.6 per cent. Negative impacts on June’s numbers can be put down to unusual chilly weather conditions and an uncertain political environment due to the impending election, which ended with the Labour Party’s triumph on July 4th.
A more optimistic outlook is on the horizon for retailers, as a 1.1 per cent rise was noticed in sales during July, in comparison with the quarter that ended in April. This also marked an 0.8 per cent surge from the same period last year. Furthermore, online sales carved out a slightly larger share of the pie, moving to 27.8 per cent from 27.4 per cent the month prior.
“Undoubtedly, the UK economy is on the upswing. Nearly all key metrics are pushing the right momentum, and we see sales volumes almost returning to the level before the Covid crisis,” stated Neil Birrell, the top Investment Officer at Premier Miton Investors, an investment management company.
The Office for National Statistics (ONS) attributed increased spending on items like football shirts, electronics including TVs, and beverages to England’s arrival at the final round of Euro 2024. Other factors that likely led to increased consumer spending included discount strategies in large stores and a warmer climate later in the month that encouraged consumer behaviour.
The UK Met Office reported higher temperatures in the third week of July, nearing around 30 degrees Celsius in certain areas and in the upper 20s, particularly in England’s wealthier southeastern region.
“Following a somewhat dismal start to summer sales, the industry was given a shot in the arm by the rise in July’s temperature, causing growth in sectors like cosmetics, clothing, footwear, and books especially with consumers gearing up for summer holidays,” observed Kris Hamer, the Director of Insight at the British Retail Consortium. “Tech items for the home office also sold particularly well as people upgraded their equipment.”
Contrarily, the solid official figures painted a more optimistic picture than what surveys had suggested. Both the CBI and BRC reported underwhelming retail sales for July, with sales volume seen as likely to remain below the seasonal average next month. The latter even recorded a mere 0.5 per cent uptick last month in sales, a decline from the 1.5 per cent increase the previous year, although still surpassing the three-monthly average.
Retail stores experienced enhanced customer visits as parents sought methods to amuse their children, stated Jon Boland, Clover’s general manager in the UK. This firm provides payment solutions to stores. He added that discretionary expenditure has seen a surge due to the summer break in schools. This report is sourced from Bloomberg.