The biggest monthly fall in retail sales on record has heightened fears that the UK will fall into a technical recession.
British retail sales slumped in June by 3.9 per cent, the sharpest monthly fall since the series began in 1986, bringing the annual growth rate down to 2.2 per cent, according to the Office for National Statistics. The data surprised analysts who had forecast a 2.5 per cent drop.
The gloomy data more than wipes out May’s unexpected 3.6 per cent surge, at odds with other surveys, which sparked debate about how the ONS compiles its figures. The ONS blamed monthly volatility for the discrepancy.
“While today’s release removed some of the confusion surrounding the retail backdrop, they only confirm that things are as bad as we feared,” said David Page, economist at Investec.
Analysts warned the data, which comes ahead of today’s official estimate of second quarter GDP growth, has increased the likelihood of a technical recession, defined as two consecutive quarters of negative growth. “A recession is a fifty-fifty call, but I can see serious stagflation over the next 9-12 months,” said Peter Dixon, economist at Commerzbank.
Economist Views: Does the sales data mean the UK is heading for recession?
Vicky Redwood (Capital Economics): “We have a 0.2 per cent rise pencilled in for the preliminary estimate of second quarter GDP today, but this suggests that a weaker number is certainly possible. There is more than a 50 per cent chance of a technical recession. I expect it to happen at the end of this year and the beginning of next.”
Peter Newland (Lehman Brothers): “This is consistent with our forecast for GDP to have risen by a below-consensus 0.1 per cent quarter on quarter. With manufacturing activity also likely to contract, our view is that GDP growth will turn negative in the third quarter and that this will mark the start of a technical recession.”
George Buckley (Deutsche Bank): “It was inevitable that at some point the official figures would fall in line with the surveys. In the third quarter even if sales grow 0.5 per cent month on month, an optimistic forecast, quarter on quarter sales look set to fall for the first time for two and a half years. A recession is a real possibility.”