Looking at the latest figures from the Office for National Statistics (ONS), annual growth in retail sales strengthened in July 2016, continuing the trend seen in the past few years. This was mainly driven by department stores, but more specifically the clothing category, which may have been influenced by warmer weather in July. The start of the year was blighted by unseasonal weather patterns, although conditions appear to be normalising. In July 2016, the volume of retail sales is estimated to have increased by 5.9 per cent compared with July 2015. All retail subsectors showed growth, with the main contribution coming from non-food stores as they adopted an aggressive discount pricing strategy during the month.
Compared with June 2016 - essentially month-on-month - the same variable increased by 1.4 per cent, with the main contribution again coming from non-food stores. The amount spent in the retail industry also increased by 3.6 per cent compared with July 2015 and 1.6 per cent compared with June 2016. Separately, the amount spent online increased by 16.7 per cent compared with July 2015 and increased by 1.2 per cent compared with June 2016.
Contributions to year-on-year retail sector growth July 2015/16
According to the ONS, the estimates are based on a monthly survey of 5,000 retailers, including all large retailers employing 100 people or more and those with annual turnover of greater than £60m that employ between 10 and 99 people. It is estimated this survey covers approximately 95 per cent of all known retail turnover in the UK.
But the same set of figures suggests price deflation is still a very real threat. Average store prices (including petrol stations) fell by 2 per cent in July 2016 compared with July 2015. Compared with the previous month, there was a fall of 0.8 per cent. However, on a positive note, the 2 per cent drop in all retailing prices is the smallest seen across the industry during the past 18 months. While the pricing trends highlighted in the retail sales data conflict with the recent consumer prices index (CPI) and retail prices index (RPI) data - which both indicated an ongoing inflationary environment - analysts at Shore Capital believe deflation has "bottomed out" and that prices are beginning to trend upwards.
Plenty of media outlets have jumped on these numbers as 'proof' that Britain can't possibly be headed for a recession in 2017, and that consumer confidence shows no sign of slowing despite the recent outcome of the EU referendum. Paul Mumford, a senior investment manager at Cavendish Asset Management, said it was "pretty clear" the Bank of England "scare stories" around the impact of Brexit were "inaccurate", and its recent decision to cut interest rates was "reckless".
He explained that while the fall in sterling will ultimately hit retailers' input costs, many will see the benefit from purchases from overseas customers now that online sales are becoming a significant growth feature of most businesses. However, he softened the blow by concluding "not too much" should be read into the recent ONS figures, which are "more likely to have been [helped] by the improved weather conditions".
Speaking more widely, Mr Mumford said the UK equity market "has a lot going for it" in the meantime. His argument is based on the fact lower sterling values will buoy the FTSE 100, which is "largely built on overseas earnings", and will make it "a lot cheaper" to invest in the UK, which could prompt an influx of foreign capital. This has direct read-across for the UK retail industry too, which is said to have been buoyed in July by an influx of tourists coming to the UK for a cheap shopping trip.
