Retail sales volumes fell by 0.8 percent in September, according to data released this morning by the ONS. From Laith Khalaf, Senior Analyst, Hargreaves Lansdown.
The year on year trend is still positive however, with sales volumes this September exceeding September 2016 by 1.2 percent. The value of retail sales rose by 4.4 percent year on year reflecting rising prices. Economists had expected a fall back in the rate of annual retail sales growth, but not to this extent.
Non-food sales volumes were the main culprit for September’s fall, showing a 0.6 percent month on month fall. Non-store retailing sales (i.e. mainly online and mail order) rose 0.2 percent over the month. The pound fell by around 0.5 percent against the dollar on the back of the news.
‘September’s retail sales figures show some evidence of belt tightening, with discretionary spending taking a particularly big hit, as shoppers prioritise more essential items as prices rise. This has given the pound a bit of a bloody nose on the currency markets, with investors scaling back their expectations of a rate rise from the Bank of England.
Despite the drop in retail sales, it would be unwise to peg a consumer slowdown on one month’s figures alone, which can be affected by random events like the weather, or a big sporting event on the telly. Taking a longer term view the UK consumer has actually been relatively resilient to rising inflation and weak wage growth, and retail sales volumes are still ahead of where they were last year despite these headwinds.
These latest figures will however give the Bank of England further food for thought when it comes to their impending decision on interest rates. Indeed, a nasty case of indigestion is probably warranted. The Bank doesn’t want to apply the brakes to consumer spending if it is slowing down of its own accord already, though it does want to curb inflation and the glut in consumer borrowing. On top of that the Bank could well find its credibility compromised if it fails to follow through on its recent hawkish commentary, and would once again be on the hook for providing “forward misguidance”.
The currency markets are clearly paring back bets that the Bank is going to raise rates imminently thanks to these latest figures, though the odds are still very much in favour of a rate hike. The stage is now set for a big decision from the central bank on 2nd November.’
