What the analysts are saying about UK retail sales growth

Source: Capital Economics

Earlier this morning, the Office for National Statistics reported that retail sales jumped by 3.0 per cent year-on-year in July, boosted by sunny weather and food sales.

For the most part, analysts seemed cautious about getting too excited over the data and prospects for a sustainable recovery.

Martin Beck, UK economist at Capital Economics:

With consumer confidence on the rise and continued growth in employment, the retail sector looks set fair for the third quarter, even as the boost from the weather fades. However, with real pay set to continue falling into next year and households eating into their savings, the resources to sustain growth in sales still look lacking.

Rob Wood, UK economist at Berenberg bank:

It’s hard to remember the last time a UK data release wasn’t stunningly positive.... The good weather is helping a lot, but we are seeing more than just a BBQ summer with indicators across the whole economy improving....

Unless there is something seriously wrong with the wage figures from the statistics office it is unlikely that the UK consumer can maintain this sort of expansion for much more than the next couple of quarters. Falling real wages are one of the top risks for the UK and as consumers calm down a bit growth should slow a little into next year, making it important that BoE guidance is able to keep short-term interest rates contained for a protracted period to come. The UK is doing well, but is not totally out of the woods yet.

That being said, today’s retail sales figures point to an economy likely to outperform the BoE’s forecasts of 0.6% qoq growth in Q3 and Q4, making it harder for Mark Carney to convince investors that interest rates really will stay on hold until late 2016 or even 2017.

Alan Clarke, UK and Eurozone economist at Scotiabank:

Real household disposable income is negative and going down, and this is basically telling you that people are definitely feeling the feel-good factor of the Help to Buy scheme pushing up house prices. This is bad growth but I'd rather have bad growth than no growth.

David Kern, chief economist at the British Chambers of Commerce:

We are now seeing a clear upward trend in retail sales, and these figures suggest that the pace of GDP growth in the third quarter will continue at a modest pace.

Some commentators have suggested that strong retail sales, while other areas of the economy remain weak, will lead to an unbalanced economic structure. We don’t share these concerns, as although we would like to see more growth coming from investment and net trade, it is better to rely initially on domestic demand than to have no growth at all.

And while net exports are not as strong as we would like, there is an improvement – a point that many commentators ignore.

To maintain business confidence we should focus on the positive features of our economy. In addition, increasing the flow of credit to growing businesses and keeping inflation low will help to gradually rebalance the economy.