This has been a week rich in UK data and we have this time an opportunity to look at some better news.
Retail sales volumes rose by 0.3% in July,
So we had an outright rise accompanied by a number that was better than forecast. Frankly the forecasts are so often wrong they serve little purpose as they mislead more often than help, but it only seems to be me who is bothered by this.
The main driver of the better news is below.
Non-store retailing sales volumes rose by 4.8% in July 2022, up from a fall of 3.7% in June 2022…….Feedback from online retailers suggested that there were a range of promotions in July 2022 which boosted sales.
We were in the sales season as some of the inflation data from earlier this week showed ( particularly clothing and household goods). But we can combine that with yet more grim news for the high street.
Clothing stores sales volumes fell by 1.2% in July 2022, following a fall of 3.9% in June 2022.
Household goods stores sales volumes fell by 0.4% in July 2022, mainly because of falls in furniture and lighting stores. Feedback from retailers suggests that consumers are cutting back on spending because of increased prices and affordability concerns.
As you can see the online numbers saw quite a swing from June but it looks as though the switch towards it continues.
Online spending values rose by 5.3% in July 2022 because of strong growth in non-store retailing…..This increased the proportion of online sales which rose to 26.3% in July 2022, from 25.3% in June 2022.
I am not sure where the official release is going at the start below because of course it is below the level when you couldn’t shop anywhere else! The message is that it has continued at much higher levels and maybe is growing again.
Despite this pick-up, the general trend in the proportion of online sales is one of decline since its peak in February 2021 (37.5%) but remains comfortably above pre-coronavirus (COVID-19) levels (19.8% in February 2020).
There was a minor boost here too.
Food store sales volumes rose by 0.1% in July 2022, from 2.7% in June 2022 when Queen’s Jubilee celebrations boosted sales.
With us maybe moving away from supermarkets.
Specialist food stores (such as butchers and bakers) increased by 4.7% over the month, while alcohol and tobacco stores fell by 8.7%.
On the other side of the coin we seem to be driving less.
Automotive fuel sales volumes fell by 0.9% in July 2022, following a fall of 4.0% in June 2022.
Rather curiously our statisticians blame the weather.
This coincides with a red and amber alert heatwave across parts of the UK, which may have reduced sales.
Curious as it usually leads to trips to the coast and cars these days mostly have air conditioning. Personally I would focus on the cost of it as an explanation.
Fuel prices increased by 2.9% between June and July 2022, and by 43.7% in the year to July 2022.
With times as they are I would have thought presumable cheaper second-hand goods would be in favour, but not in July.
The sub-sector of other non-food stores reported a monthly fall in sales volumes of 1.5% in July 2022 because of a strong fall in second-hand goods stores (particularly antiques stores and auctioning houses).
Where does this leave us?
Whilst we managed a little growth on a monthly basis we still face this.
Looking more broadly, in the three months to July 2022, sales volumes fell by 1.2% when compared with the previous three months; this continues the downward trend since summer 2021.
The reason for the relative struggle returns me to the theme I first established back in January 2015.
Retail sales volumes rose by 0.3% in July, following a fall of 0.2% in June 2022 (revised from a fall of 0.1%). Retail sales values, unadjusted for price changes, rose by 1.3% in July 2022, following a rise of 1.1% in June 2022.
We can make an ersatz inflation measure by subtracting volume growth from value growth. So 1% in July and 1.3% in June. As it happens we did better with lower inflation but I think that is over analysing and the real issue is that higher inflation has been accompanied by a turn lower in retail sales volumes.
We are still above pre pandemic levels but can we sustain that?
sales volumes were 2.3% above their pre-coronavirus (COVID-19) February 2020 levels.
I see a lot of attention being paid to this.
Joe Staton, Client Strategy Director, GfK says: “The Overall Index Score dropped three points in August to -44, the lowest since records began in 1974. All measures fell, reflecting acute concerns as the cost-of-living soars. A sense of exasperation about the UK’s economy is the biggest driver of these findings.
But we have been on this case since around a year ago when it was clear that inflation was coming. So whilst it is welcome that others have been catching up I counsel caution against a sort of gloom party.
Public Finances
I have watching these to pick up the changes in our economy and the one that was clearest last month was the rise in debt costs due to inflation. It was also in play in July.
Central government debt interest payable was £5.8 billion in July 2022, £2.3 billion more than in July 2021 but £13.9 billion less than the record £19.7 billion payable in June 2022;
As the monthly profile of these bonds varies the outright monthly fall is not especially helpful for analysis whilst being welcome. The essential issue is that we saw a £2.3 billion or 65% increase on last year’s £3.5 billion. It is not quite as immediately bad as it looks because most of it is added to future debt repayments rather than paid now. But it is an issue.
On the positive side receipts look pretty good overall.
Central government receipts were £78.2 billion in July 2022, which was £6.1 billion more than in July 2021; of this, tax receipts were £58.6 billion, which was an increase of £4.6 billion compared with July 2021.
Self-assessed Income Tax receipts were £9.1 billion in July 2022, which was £0.6 billion more than in July 2021.
On the other side of the coin inflation affects us in other areas as well as debt costs.
Social assistance payments in July 2022 were £2.8 billion, £2.2 billion higher than those paid in the July last year and reflect the Cost of Living support payments made this month via existing benefit schemes.
It spent a bit more in other areas and local government was £1.1 billion worse than last year.
Some Perspective
We are doing better than last year but the gap is narrowing.
Public sector net borrowing excluding public sector banks (PSNB ex) was £55.0 billion in the financial year (FY) to July 2022, £12.1 billion less than in the same period last year.
As to our debt this is the most realistic estimate from today’s release.
Our public sector net debt excluding the public sector banks and the Bank of England (PSND ex BoE) measure removes the debt impact of these schemes along with the other transactions relating to the normal operations of the BoE. Standing at £2,069.6 billion at the end of July 2022 (or around 82.8% of GDP), PSND ex BoE was £318.4 billion (or 12.7 percentage points of GDP) less than PSND ex.
Comment
Essentially things are progressing pretty much as we expected and to some extent feared. I suggested the UK will have a difficult year with the numbers ebbing and flowing around zero and that is how we are progressing. For the rest of the year much depends on the October domestic energy price cap announcement and in particular the government response to it. If they wish to stop a sharp downturn then a substantial intervention will be required which if we return to one of today’s issues will worsen the borrowing and national debt numbers.
Let me finish by reminding you of my first rule of OBR Club which is that the OBR is always wrong. From today’s release.
This required it to borrow £4.9 billion, which was £4.7 billion more than the £0.2 billion forecast by the Office for Budget Responsibility (OBR)
That is a pretty spectacular effort for a single month.