Retail sales bounce back as consumer spending continues to support the economy
Retail sales rebounded in February after a dip to start the year, a new survey shows, as consumer spending continues to hold up despite inflation increases.
Two in five retailers reported increased volumes in February to give a positive balance of nine per cent, according to the Confederation of British Industry’s (CBI) survey of distributive trades.
This represented a strong improvement from January’s negative eight per cent balance, but retailers on balance expect business conditions to worsen over the next quarter for the first time in four-and-a-half years as cost pressures increase.
Read more: Retail sales fell during January
Increased clothing sales as well as the unlikely category of non-store sales – including vending machines, door-to-door sales and TV shopping channels – were the main contributors to growth in volumes sold.
However, growth in a more modern form of commerce, internet sales, slowed, as did the volume of orders to suppliers.
Ben Jones, CBI principal economist, said: “The rebound in retail sales suggests that some of the recent gloom about a slump in consumer demand at the start of 2017 may be overdone.”
However, Jones and other economists noted the looming threat of consumer spending slowing. The devaluation of sterling since the EU referendum has led to significantly higher factory prices.
Read more: British consumers see no hit from Brexit
These in turn will gradually feed through to higher prices for the UK consumer, at a time when wage growth has not yet picked up.
Jones said: “Retailers remain cautious about their prospects, expecting fairly tepid growth in sales volumes next month against a backdrop of rising inflation that is likely to erode households’ purchasing power through the course of the year.”
The continued strength of consumer spending since the EU referendum has sustained the economy, prompting forecasters from the International Monetary Fund to the Bank of England (BoE) to upgrade their outlook for UK growth.
Read more: Bank of England in dramatic upgrade of UK growth forecasts
However, many economists, including those at the BoE, expect households to spend less as inflation bites into discretionary spending.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The failure of the CBI’s reported sales balance to recover significantly after its plunge in January provides more evidence that a consumer slowdown is underway.
He added: “The modest rise in sales meant that retailers reduced orders with suppliers at the fastest rate since July and cut employment at the fastest rate for two years.”