Analysts fear UK retail sales rise may be ‘blip’

Spending up by 1.3% in May

Oxford Street. Analysts at Hargreaves Lansdown pointed to the rise of online retail, and the accompanying change in UK shopping culture that seems unlikely to be reversed.

Oxford Street. Analysts at Hargreaves Lansdown pointed to the rise of online retail, and the accompanying change in UK shopping culture that seems unlikely to be reversed.

 

Following a shaky start to the year for the UK high street, the British public spent a lot more in May than expected. But reacting to the news on Thursday, some analysts warned the sector is still vulnerable.

“Nothing more than a weather-related blip,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics, alluding to the unexpected appearance of a mysterious golden orb in the skies above the UK that month.

The rise in retail sales was largely a result of better weather in May, he said, which persuaded shoppers to part with their cash for clothing, sporting goods and gardening items in particular following March’s very cold spell.

But the uptick – spending rose 1.3 per cent month-on-month in April compared to a consensus expectation of 0.5 per cent — does not appear to constitute a “sustainable pick-up in spending,” said Mr Tombs.

Cautious

James Smith, an economist at ING, was similarly cautious. “UK shoppers came out in force in May as the sun finally made an appearance. Dig a little deeper though, and the retail environment still looks challenging,” he said.

Stripping out the impact of May’s sunny weather, particularly over the bank holiday weekend, and of the royal wedding, “the environment still looks challenging,” he said. Consumer confidence remains low by historical standards, while retailers have been forced to contend with higher business rates and increased labour costs.

Ian Gilmartin, of Barclays Corporate Banking, was more optimistic. Despite tough market conditions and dismal predictions about the demise of the high street, many retailers are “simply getting on with the job and continuing to attract customers through their doors”, he said.

“Of course, we’re not going to have a heatwave and a Royal Wedding to help drive sales every month, but the World Cup kick-off should help supermarkets in particular maintain this momentum over the next month or so.”

Optimism

There may also be cause for more long-term optimism, suggested Ruth Gregory, an economist at Capital Economics. “With real pay rises in prospect, consumer spending should receive more fundamental support as the year progresses,” she said. “Annual spending growth should pick up from 1.1 per cent in Q1 to about 2 per cent by early 2019, helping the economy to regain some momentum.”

However, analysts at Hargreaves Lansdown pointed to the rise of online retail, and the accompanying change in shopping culture that seems unlikely to be reversed.

The brick-and-mortar shops that survive are likely to be those that treat high street shopping as a “pastime” rather than an essential, they said: “the artisanal shop looks like the future of the high street.”

Copyright The Financial Times Limited 2018