UK retail sales growth surges to 14-year high

Posted on November 17, 2016

UK retail sales growth surged to a 14-year high in October as consumers kept spending and colder weather boosted clothing sales.

The seasonally adjusted volume of sales was 1.9 per cent higher in October than in September, the Office for National Statistics said on Thursday. Sales were boosted by strong growth in clothing and footwear as the end of unusually mild autumn weather — two degrees Celsius above normal — encouraged people to invest in winter clothing. Total volumes were 7.4 per cent higher than the same month a year ago — the fastest annual growth since April 2002.

The growth in sales was far higher than most analysts had been expecting. On average, forecasters had predicted growth of 0.4 per cent in October compared with September, and by 5.3 per cent compared with October 2015.

Kate Davies, ONS senior statistician, said: “The strong figures this month have been boosted by several factors. Cooler temperatures in October boosted clothing sales as shoppers took their cue to purchase winter clothing, while the supermarkets benefited from Halloween. This has also coincided with the strongest growth in internet sales seen for five years.”

The weather was not the only factor driving sales in October. Volumes excluding clothing grew by 1.3 per cent compared with September and sales grew for all store types apart from department stores. Analysts suggested higher spending from overseas visitors — attracted by the weaker currency — could have contributed to strong sales growth in recent months.

“The annual growth rate [of retail sales] … is running at double the pace of household disposable income growth” said Alan Clarke of Scotiabank. “That may well be telling us that the spending is coming from abroad.”

Luxury brands such as Burberry had strong growth in sales in the UK during the third quarter as tourists took advantage of the weaker pound.

It is also possible consumers have decided to purchase big-ticket items now before prices rise next year, which forecasters are widely expecting.

Consumer spending has been resilient since the UK voted to leave the EU, defying expectations of the Bank of England and other forecasters. The buoyant mood of consumers contrasts with an apparent belief in financial markets that the UK will be permanently weakened by Brexit.

Consumer spending has been resilient since the UK voted to leave the EU © Bloomberg

The Bank of England’s latest inflation report concluded that “ultimately, the tension between consumer strength on the one hand and the more pessimistic expectations of markets on the other will be resolved”. The Monetary Policy Committee thinks this will happen through household consumption starting to slow as inflation picks up next year thanks in part to the weaker pound.

“The recent slowdown in employment growth and pick-up in market interest rates — which will soon lift mortgage rates — suggest that retailers face a tough year,” said Samuel Tombs of Pantheon Macroeconomics.

Sterling has lost a fifth of its value over the past year, including a sharp fall since the EU referendum. However, figures published on Tuesday by the ONS suggested this has not yet fed through into consumer prices, which were just 0.9 per cent higher in October than a year ago.

Mike Prestwood, ONS head of inflation, said: “After initially pushing up the prices of raw materials, the recent fall in the value of the pound is now starting to boost the price of goods leaving factories as well.” Most forecasters believe it is only a matter of time before retailers start to pass these higher costs on to consumers.

John Ellis, retail & consumer partner at PwC, said: “Over the next few months, the way in which retailers deal with cost headwinds, particularly the impact of foreign exchange on product prices, will be crucial for consumers’ future spending patterns.”

Additional reporting by Mark Vandevelde

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