U.K. Retail Sales Dip Less Than Forecast as Confidence Holds

(Bloomberg) -- U.K. retail sales declined less than economists forecast in August following the strongest July increase in 14 years, the Office for National Statistics said on Thursday.

Key Points

  • Volume of goods sold in stores and online fell 0.2 percent (median forecast was 0.4 percent decline)
  • Sales excluding auto fuel declined 0.3 percent (median forecast was 0.7 percent drop)
  • Sales in July grew 1.9 percent instead of 1.4 percent initially estimated
U.K. Retail Sales Dip Less Than Forecast as Confidence Holds

Big Picture

  • The figures suggest a pullback following a strong July, with the ONS saying there is no evidence of “any major fall” in consumer confidence following the June decision to leave the European Union. Surveys show consumer sentiment rebounding from the initial Brexit shock, and data from construction output to the labor market point to an economy doing better than many had predicted. The report comes as the Bank of England prepares to announce its latest interest-rate decision at noon in London. Economists expect no change after policy makers cut rates to a record-low 0.25 percent and restarted asset purchases last month, though officials may keep the door open to further stimulus later this year as the outlook remains uncertain

Economist Takeaways

  • “It still looks likely that consumers have played a key role in keeping the economy growing following June’s Brexit vote,” said Howard Archer at IHS Global Insight. “Even if retail sales volumes are only flat month-on-month in September, they would have grown 1.5 percent quarter-on-quarter in the third quarter”
  • “Despite August’s dip, spending on the high street is still going gangbusters, although some moderation will surely occur over the next few quarters,” said Paul Hollingsworth at Capital Economics in London. “While the survey evidence has been relatively upbeat, a number of indicators still point to a slowdown on the basis of their past relationship with the official figures. That said, low interest rates and a likely easing in the fiscal squeeze at the Autumn Statement later this year should help offset some of these effects”
  • “After yesterday’s decent jobs numbers this report provides further evidence that the U.K. is weathering the near term effects of the Brexit vote well,” said James Knightley at ING in London. “Nonetheless, we still worry that the economy will slow given business survey responses point to a sharp deterioration in hiring and investment intentions. We will also have to wait to see whether the end of the summer political recess and the intensification of Brexit debates in the build up to the triggering of Article 50 start to sap confidence more broadly”

Other Details

  • Food sales increased 0.7 percent in August; non-food sales fell 1.9 percent
  • Clothing and footwear dropped 3.4 percent; household goods slid 5.3 percent; sales of auto fuel rose 0.6 percent
  • Sales climbed 6.2 percent in August from a year earlier; 3-mo/3-mo growth rate slowed to 1.6 percent
  • Prices as measured by the sales deflator fell 1.9 percent from a year earlier, least since November 2014
  • Value of sales fell 0.5 percent from July to 27.5 billion pounds ($36.4 billion), a weekly average of 7.1 billion pounds
  • ONS says some evidence of weaker pound boosting foreign demand for luxury goods, with sales of watches and jewelry up strongly versus the year earlier