DEBATE: Retail sales are down since this time last year – does this foreshadow economic doom?

Christmas Shoppers Brave Crowds During So-Called 'Panic Saturday'
It’s going to be a nail-biting end of the year for the retail sector (Source: Getty)

Retail sales are down since this time last year – does this foreshadow economic doom?

Craig Erlam, senior market analyst at OANDA, says YES.

The consumer is a key component of many economies, but this is particularly true when it comes to the UK, which makes the latest retail sales data very worrying. To make matters worse, this is not a one-off number or even a bad patch. It’s down to a combination of factors stemming from the Brexit referendum last year, and there is little to suggest the situation is going to improve any time soon.

That’s not to say we’re in a permanent slump, and it’s not a judgement on the outcome of the vote. It’s merely a consequence of high inflation and moderate wage growth, both of which were predictable in the immediate aftermath of the event. While these effects will eventually wear off, in the meantime, falling real wages will have negative implications for the consumer and therefore the economy.

Until wages improve for those most squeezed or tourism fills the void due to the weaker pound, the situation is unlikely to dramatically improve.

Read more: Retail sales fell less than expected in October

Lisa Hooker, consumer markets leader at PwC, says NO.

Although October’s retail sales were disappointing, volumes have in general held up against the odds over the past year. Rising inflation has dampened consumer spending, but, with the inflation peak approaching, easing price pressures through 2018 should help consumers and retailers alike.

In the short term, we expect stronger retail sales in the run-up to Christmas, thanks in part to positive consumer sentiment, particularly among young people. According to a PwC survey, consumers are more optimistic about their personal finances than at any point during the last recession.

We think this will be good news for the economy, with the recent interest rate rise being too small and too late to affect consumer spending intentions this year.

In fact, consumers tell us they plan to spend more on categories such as food, toys and children’s clothing this year, although they also plan to take advantage of Black Friday bargains.

So while it’s going to be a nail-biting end of the year for the retail sector – and the economy as a whole – we still think the outcome will be positive.

Read more: Here are the key retail trends businesses need to watch out for

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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