Sterling above $1.30 as retail sales net Easter boost

Michele Moreno
May 19, 2017

In the first quarter retail sales had declined at their fastest quarterly rate in seven years.

Retail sales volumes were 4.0 percent higher than a year earlier after 2.0 percent annual growth in March, again beating forecasts in a Reuters poll for a 2.1 percent rise. Meanwhile, the prices are still quite high despite the inflationary pressures having eased together with the pound's rebound: U.S. consumers spent 7.1 percent more money in April than they did a year ago, producing the aforementioned 4-percent surge in retail sales.

The number in employment meanwhile surged by 122,000 to a record high of nearly 32 million people, the ONS added.

"Today's upside surprise will probably mean that nearly every City forecaster will be looking for payback in next month's May figures, particularly if Easter or weather distortions played a sizeable role in today's good news", George Buckley, an economist at Nomura, said.

"This already appears to be dampening consumption, and is why we don't expect a United Kingdom rate hike before 2019". "With Amazon soaking up much of the online market, too much competition on the high street leading to oversupply and price rises thanks to inflation, we expect consumers to take a breather from retail buying later this year with a survival of the fittest scenario playing out amongst retailers". The Consumer Price Index rallied to 2.7 per cent from a rate of 2.3 per cent in March.

Average weekly earnings of the people (excluding bonuses) jumped 2.1 per cent, while inflation jumped from 2.3 per cent to 2.7 per cent in April.

The ONS said retailers reported that fine weather had boosted demand.

Alan Clarke, an economist at Scotiabank, added: 'With inflation likely to continue accelerating sharply, the headwinds facing the consumer will intensify, which in turn is likely to slow the pace of consumer spending later in the year'.

On a sector-by-sector basis, no single area disproportionately drove growth, while department stores continued to see a small fall in sales.

"Our forecast is for consumer spending growth of 2.0pc in 2017 and 1.5pc in 2018, down from 2016's 2.8pc rate".

"We can not expect the consumer to be such a strong driver of growth in 2017 and 2018 as in the past few years".

The rise in April was fairly broad based, with sales in non-food stores up by 2.3% and sales at supermarkets and other food stores up by 1.3%. "As a result, the growth of the United Kingdom economy will slow - and we are likely to see further confirmation of this slowdown as we move through this year".

Other reports by Insurance News

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