Retail sales confound expectations but Brexit related uncertainty can still hit the consumer sector - EY ITEM Club comments

18 August 2016

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  • Surge in retail sales confounds expectations…
  • …with volume growth in July reaching a three-month high
  • Still early days, but action by Bank of England will help to offset any Brexit impact

Martin Beck, senior economic advisor to the EY ITEM Club, comments:

“July’s retail sales numbers are the first piece of ‘hard’ post-referendum data. A 1.4% monthly rise in sales volumes was well above the consensus expectation of a 0.1% increase and represented the best performance in three months. July’s reading pushed up annual growth to 5.9%, the highest since last September.

“July’s strength in overall volumes was broad-based, with all the major retail sub-sectors seeing robust growth. Department store sales were star performers, while clothing and footwear saw growth of 3.6% and food sales rose by 0.6%.   

“However, one swallow does not make a summer and Brexit-related uncertainty still has the potential to hit the consumer sector. Although rising inflation on the back of sterling’s fall will squeeze shoppers’ purchasing power, action by the Bank of England to cut borrowing costs and aid the supply of credit will provide some offset. If the UK can avoid any serious rise in unemployment, the odds of a severe drop in consumer spending look remote.”