UK retail sales swing sharply negative - ING

James Knightley, Senior Economist at ING, notes that we received volatile figures for retail sales, but the UK still saw strong consumer spending in 2016 but this momentum is likely to fade somewhat in 2017.

Key Quotes

“UK retail sales excluding auto fuel fell 2%MoM in December, much worse than the 0.4% drop the consensus was expecting. There were also some modest downward revisions. Nonetheless, this still leaves the annual rate of growth at +4.9%.”

“The breakdown shows food stores fell 0.5%MoM while non-food stores saw sales drop 2.6%, led by a 3.7% drop in clothing and footwear and a 7.3% decline in household goods. These two components are particularly volatile, not helped by the growing significance of Black Friday and Cyber Monday events in the UK in recent years. This has played havoc with statisticians’ seasonal adjustment factors for their calculations, contributing the big swings in the numbers. All in all though, the report indicates consumer spending performed fairly well in 4Q16 with next week’s GDP report expected to show the economy grew by 0.5% in the last three months of the year.”

“We suspect that retail sales growth will soften in 2017. Consumer confidence is weakening and employment growth has stalled while real household disposable incomes are being eroded by higher prices. At the same time retailers themselves are going to see profit margins squeezed by higher import costs resulting from sterling’s weakness (this will continue due to currency hedges gradually falling off) and increases in the National Living Wage.”