Retail Sales bring more signs of the stagflation affecting the UK economy

by Shaun Richards

This week has been a particularly rich one for UK economic data and we finish it with a release which pretty much confirms our view of the state of play.

Retail sales volumes fell by 0.5% in May 2022 following a rise of 0.4% in April 2022 (revised from a rise of 1.4%);

If we take May and April together we have basically gone nowhere especially as the April revision reminds us of the margin of error for this indicator. A pretty clear suggestion of the stag part of stagflation and the inflation bit comes here.

Compared with the same period a year earlier, sales volumes over the last three months fell by 2.8%, while sales values rose by 6.9% reflecting an annual implied deflator (or implied growth in prices) of 9.7%

So no growth and inflation nudging double-digits territory.

Breaking it down

The area that was particularly weak was food and it is also below pre coronavirus levels.

Food store sales volumes fell by 1.6% in May 2022, 2.4% below their pre-coronavirus (COVID-19) February 2020 levels.

Regular readers will recall that since January 29th 2015 I have been making the point that high inflation is bad for retail sales and it seems that our official statisticians are noting this.

Affordability may explain some of the falls in recent months. Results from >our Opinions and Lifestyle Survey (OPN), covering the period 11 to 22 May 2022, found that 88% of adults reported that their cost of living had increased over the last month, up from 62% when this question was first asked (3 to 14 November 2021). The most common reason reported by adults who said their cost of living had increased was an increase in the price of food shopping (93%).

I know some of them read this blog so perhaps the message has seeped through. Correlation is of course not causation but the change below is about as good as we ever get in economics.

When asked about their shopping habits in the past two weeks, 44% of adults reported that they were buying less food when food shopping. This proportion appears to be increasing, having been 41% in the previous period (27 April to 8 May 2022) and 18% at the beginning of 2022.

If that wasn’t enough for you.

Comments from some food retailers highlighted that they are seeing a decline in volumes sold because of increased food prices and cost of living impacts.

Fuel Sales

These are being affected by the ch-ch-changes in the economy.

The strength of fuel sales, despite rising fuel prices, may in part be linked to the continued shift towards hybrid working. Analysis of the Opinions and Lifestyle Survey reported that during 2022, the proportion of workers both working at home and at their usual place of work (“hybrid working”) has been rising, while the proportion of those working from home exclusively has fallen.

On an anecdotal level this is true of my friends and acquaintances. With the shift towards electric vehicles and hybrids which will not be in these numbers the overall move is likely to be stronger than shown.

Automotive fuel sales volumes rose by 1.1% in May 2022 down from 2.6% in April. Sales volumes were 1.6% below their pre-coronavirus February 2020 levels.

I did my bit for this month’s numbers by driving to a family event on Tuesday although it was not by choice as the railways were on strike.

Other Sectors

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These fitted especially well with my theme about the impact of inflation.We have seen strong inflation figures for furniture ( The RPI category has seen inflation of 13% in the year to May) and the like and now we see this.

Household goods stores (such as furniture stores) sales volumes fell by 2.3% in May 2022 because of falls in each of its sub-industries. The feedback from retailers suggests that consumers are cutting back on spending because of increased prices and affordability concerns.

There may even have been an impact in the other direction here because whilst prices rose they rose by quite a bit less than last year.

Clothing stores reported a monthly increase in sales volumes of 2.2%. Feedback from some retailers suggests that the increase was linked to customers planning holidays and therefore buying new clothes.

Switching to the online sector then the theme there continues.

The proportion of online sales fell to 26.6% from 27.1% in April 2022. Despite the fall in May 2022, the proportion of online sales remains substantially above its level of 19.7% in February 2020 before the coronavirus (COVID-19) pandemic.

I am afraid that the bad news for the high street keeps on coming.

Some Perspective

Because of the impact of the pandemic and the lockdowns the annual comparison is distorted but we can look at the overall move.

When compared with the pre-coronavirus (COVID-19) level in February 2020, total retail sales were 2.6% and 13.0% higher in volume and value terms, respectively.

So we still have improved since then but the growth is slip-sliding away.

Compared with the same period a year earlier, sales volumes over the last three months fell by 2.8%

Business Surveys

These have been in the news a little and this morning’s has created a minor financial media frenzy.

Market research firm GfK said its consumer morale index, launched 48 years ago, fell to -41 in June from -40 in May, below levels that have previously preceded recessions. ( Reuters)

Reporting it as a “record low” is simultaneously true and not telling us much new as basically it is a reflection of the economic situation I think. The Markit business survey earlier this week was much more positive about the UK than the Euro area.

June data indicated that output growth across the UK private sector was unchanged from the 15-month low seen in May. Resilient business activity trends were seen across the service economy as a whole, but manufacturing production growth eased further to its lowest since February 2021.

I am no great fan of the PMI series but it showed us being stronger than the US as well so even with its errors it may at least be consistent across countries and areas.

Comment

We have seen a week that has fitted pretty well with what we have been expecting. We have an inflation surge which has taken away the growth we previously had via its impact on the cost of living. If there was a surprise it was the acceleration in house price growth but those numbers were only for April and even the Bank of England is getting edgy as its change to affordability rules highlighted.

Today has brought worrying news for house prices though. This is because if you look at the track record of our banks they frequently expand at or no to the top of the market.

LONDON, June 24 (Reuters) – Barclays (BARC.L) has struck a deal worth around 2.3 billion pounds ($2.8 billion) to buy specialist lender Kensington Mortgage Company, extending its reach in Britain’s housing market.

The acquisition represents one of Barclays’ biggest recent transactions and a sizeable bet on the property market.

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