A recent release of industry data showed that retail sales growth reached a two-year high during the beginning of September. This unexpected surge in spending means that economic growth could be picking up pace much quicker than previously predicted.
The figures from The Confederation of British Industry’s (CBI) report show retail sales balances moving from -10 during August to +42 in September, with 56% of retailers reporting a sales increase. This is far higher than any previous economist predictions and could see the Bank of England interest rate rise in November, the first since 2007. This could spell the end of the cheap lending which many UK consumers have become accustomed to.
An increase in spending was not predicted as many consumers across the UK have experienced price increases due to a rise in inflation. Although wages are expected to rise and inflation is predicted to fall over the next couple of years, consumers are not feeling the benefits yet. During August, inflation increased to 2.8%, which means that real wages are continuing to fall.
Since the Brexit vote, the value of the pound has decreased drastically, leading to price increases across many areas within the FMCG industry. With the outlook for the UK’s exit from the European Union uncertain, it is difficult to know what the effect will be on household spending.
Although September has been a strong month for retail spending, the financial pressure on homes is set to continue. This means retailers will continue to face challenges in the run-up to Christmas. The sectors most likely to perform well during the rest of 2017 are clothing and grocery retailers, as consumers continue to spend on what could be seen as necessities. Internet sales volumes are expected to increase at a fast pace and have increased by 54% month-on-month from August to September.
On the whole, retailers are feeling optimistic, with 37% of business polled in the CBI Distributive Trades Survey predicting further sales increases during October. Nonetheless, some economists are doubting that retailers will experience the strong growth in consumer spending predicted during the crucial final quarter in the build-up to Christmas.
It is encouraging to see retail sales pick up, but it is important to remain aware of the effect of inflation and currency fluctuations on household budgets. If you would like more information about how Anthony Gregg Partnership can help, please contact us.