The latest figures from accountancy giant EY show that June’s retail sales decline was not enough to prevent a robust outturn for Q2 as a whole, which remained on track to see quarterly GDP growth of around 0.4%.
EY says a broader look at the retail landscape suggests that sales have held up reasonably well given the pressures on spending power. However, it says there is little reason to expect much of a pickup in the short-term.
The firm says the strong retail performance in Q2 supports the case for a Bank of England interest rate hike at the August Monetary Policy Committee (MPC) meeting, after it was diluted by lower than expected consumer price inflation of 2.4% in June and weak earnings growth in May.
Howard Archer, chief economic advisor to the EY ITEM Club, said: “Retail sales volumes fell by 0.5% month-on-month on an including fuel basis in June. But given this followed two very large increases in April and May, sales over Q2 as a whole were still up by 2.1%. This was the strongest quarterly growth since Q1 2004, although the growth rate was heavily flattered by the comparison with the snow-disrupted first quarter. Tthe three-month rate is likely to drop back from July as the soft comparators drop out of the calculation.
“With today’s data suggesting only a modest drop in distribution output in June, we remain on track to see solid growth in services output of around 0.6% in Q2, with GDP set to grow by 0.4%.
“Given the extreme volatility of the monthly data, which can distort even the three-month averages, we often prefer to use a longer rolling average to better gauge the health of the sector. The six-months-on-six-months rate suggests that sales have held up reasonably well given the force of the headwinds from high inflation and weak wage growth, although sales growth remains well down on the 2014-16 period. We find it difficult to envisage much of a pickup in the short-term. Although the squeeze on spending power has eased, it is still not improving, and consumers’ desire to borrow appears to be reaching its limits.”