Even with the ongoing political and economic uncertainty, year-on-year sales growth remained around average levels in October. Macroeconomic trends continued in line with previous months, with stagnant house prices, falling real wage growth, and lower consumer credit expansion.
The final two months of 2019 are a crucial trading period for the high street, encompassing both the Christmas period and (a slightly later) Black Friday. Retailers will hope that consumer confidence can hold on until the new year despite the mixed economic outlook.
NO SURPRISES IN OCTOBER AS ANNUAL GROWTH REMAINS IN LINE WITH PRIOR MONTHS
The UK retail market reported value and volume growth of 3.2% and 2.7% respectively when compared with October 2018, which broadly corresponds to the average growth rates reported across the last 6 months.
The fashion subsector continued to perform surprisingly well with year-on-year value and volume growth of 3.1% and 2.6% respectively, supported by increased discounting. Elsewhere, household goods stores saw their fourth consecutive month of decline, reflecting the ongoing reluctance of consumers to commit to ‘big-ticket’ purchases.
Footfall continued to fall sharply in October, as the number of shoppers that visited the high streets declined by 5.1% in comparison with the same month last year. All regions across the UK other than Scotland reported negative growth, with the severity of decline particularly notable in the North West and West Midlands, which reported decreases of 6.4% and 6.1% respectively.
Overall, there were no major deviations from long-term trends in October. Looking forward, retailers will be closely monitoring the outcome of the UK’s General Election and the resulting governmental policy, both domestically and on the key issue of Brexit.
HEADLINE LABOUR FIGURES REMAIN STRONG – UNDERLYING TRENDS POINT TO DISRUPTION AHEAD
The unemployment rate fell marginally by 0.1% to 3.8% in the three months to September. Although the labour market continues to perform well, both compared to the wider economy and historical trends, warning signs are becoming increasingly evident.
Employment fell by 58,000 in the three months to September, the largest decline since 2015, and UK wage growth also lost momentum. Average weekly earnings growth slowed by 0.2% to 3.6% in the third quarter, with real wages remaining below the pre-crisis peak.
With ongoing uncertainty around Brexit, and an election currently taking place, there appears to be little chance of this trend reversing anytime soon.
NO MAJOR SHIFT IN LONG-TERM CONSUMER CREDIT AND HOUSE PRICE TRENDS
The UK house market remained flat in October, with year-on-year price growth of 0.4%, reflecting an increase of around £800 in absolute terms. Meanwhile, Bank of England statistics showed unsecured borrowing had increased by £225m, reflecting a year-on-year growth rate of 3.1% – considerably below the 5.2% growth rate seen in January.
Looking forward, with inflation falling to its lowest level in nearly three years in October, and with weak economic growth, expectations are that the Bank of England’s next move may be an interest rate cut, potentially providing a platform to reverse some of the trends we have seen in recent months.
Compliments of AlixPartners, a Member of the EACCNY