UK retail sales for July are a touch weaker than expected, rising only 0.2% MoM versus the 0.3% rate expected. However, there was an upward revision of a tenth of a percent so the net effect is that the report is pretty much in line. Excluding fuel sales, spending rose 0.2% versus 0.4% expected, but again there was an upward revision of 0.2%.
The breakdown shows food sales rising 0.7% while clothing and household goods both saw sales falling 0.3% and non-store/repair sales fell 0.9%. Essentially retail sales are flat lining at the moment, which is unsurprising given confidence is so weak and household finances are so heavily strained.
This story is unlikely to change soon. However, we are more optimistic as we head into 2012. Nominal wages are picking up and if inflation falls as we expect next year we could see the first increase in real wages for 4 years. There is a big increase in the tax free allowance next year as well while compensation payments from the miss-selling of payment protection insurance (up to £7bn worth) will also help. It is also important to remember that despite the focus on unemployment, employment has actually been rising though the year and employment intention surveys remain encouraging. This all has the potential to improve household finances over the next twelve months, which should support confidence and therefore, hopefully, prompt an improvement in sending growth.
Source: ING Bank