As we look at the UK economy some numbers are drivers and others are followers. Or as the Frenchman puts it in the Matrix series of films there is the concept of “cause and effect”.So let us look at the UK retail sales and public finances data released today in the manner. In which case we start with these two numbers.
Public sector net borrowing (excluding public sector banks, PSNB ex) is estimated to have been £34.1 billion in December 2020, £28.2 billion more than in December 2019, which is both the highest December borrowing and the third-highest borrowing in any month since monthly records began in 1993.
As you can see December saw an extraordinary fiscal stimulus which continued what has been happening since last spring.
Public sector net borrowing (PSNB ex) in the first nine months of this financial year (April to December 2020) is estimated to have been £270.8 billion, £212.7 billion more than in the same period last year and the highest public sector borrowing in any April to December period since records began in 1993.
So our story starts with what has been what one day will be in the economics text books as an example of fiscal policy. That is our first link into the retail sales numbers as it creates a more positive foundation for them than otherwise. The main schemes are listed below.
- COVID-19 Corporate Financing Facility
- Coronavirus Job Retention Scheme (CJRS)
- Self-employment Income Support Scheme (SEISS)
- Eat Out to Help Out
- miscellaneous subsidies paid out to businesses
Of these the first does not involve the public finances at this stage as the Bank of England has lent some £12.3 billion in the CFF. It may appear if there are losses on the scheme but as we stand we see simply some implicit support for retail sales.
The next two categories will have been a direct support for retail sales and the latest estimates are below. I say estimates because they are particularly exposed to the prospect of revision so it is best to take them as a broad brush.
Of this additional expenditure, £67.6 billion was paid as a part of the job furlough schemes, with £48.8 billion on the Coronavirus Job Retention Scheme (CJRS) and £18.8 billion on the Self Employment Income Support Scheme (SEISS).
Far from ever penny will have gone into retail sales but clearly they have been quite a support. If we look at Eat Out To Help Out it will have provided a boost but that is now over as for a start the places it helped are presently mostly shut, to sit-down business anyway.
UK Retail Sales
It is in the light of all of the above that we see this.
In December 2020, retail sales volumes increased by 0.3% when compared with November 2020, resulting in an increase of 2.7% when compared with February’s pre-lockdown level.
So we saw growth in December which helped numbers to be higher than pre pandemic and in a more conventional metric higher than a year before.
The year-on-year growth rate in the volume of retail sales increased by 2.9% when compared with December 2019; non-store retailers reported the largest year-on-year growth at 43.5% while food stores also saw strong annual growth of 4.4%.
The detail from the numbers above also puts us on notice that there have been plenty of changes. The growth in food store sales for example has no doubt been at least partly in response to the restrictions on the restaurant sector. Indeed as we look further some of the exchanges and changes have been like a rally in a game of tennis.
Clothing retailers saw the largest monthly growth in December 2020 of 21.5%, rebounding from the monthly fall of 19.6% reported in November where the sector was affected by widespread store closures. Food stores reported a monthly fall of 3.4% in December, which can be partly be attributed to a fall back from the 2.8% growth in November. In November, supermarkets benefitted from the closure of the hospitality industries and other non-essential retail sectors in some parts of the country.
We can learn more in several respects from looking at the clothing sector. It has been the sector affected the most by the pandemic in terms of numbers and sadly in terms of impact on the high street both now and in any likely future.
The clothing sector has been one of the worst affected by the restrictions to non-essential retail during the coronavirus (COVID-19) pandemic period. Sales declined rapidly in March and April 2020, with consecutive monthly falls of 35.7% and 49.3% before the first signs of a recovery began in May with a monthly growth of 17.5%.
The swings became much smaller with this before lockdown 2.0 in November.
There then followed four months of continuous growth before a small decline of 1.2% in October 2020,
However the overall picture for this sector is grim.
Despite the monthly recovery, sales in the sector are still 14.2% lower than December 2019 and continue to remain at a lower level than before the pandemic struck.
If we stay with the swings it must be very difficult for out statisticians trying to deal with these swings. This relates to an area I have been dealing with since 2012 ( Eeek!), which has as a sub component the problems of fashion clothing where values change quickly with fashion. A dress for £50 if it goes out of fashion may be cleared for £25 say. But whilst it is objectively the same dress subjectively it is not. Sadly the Office for National Statistics has turned its blind eye to this issue and never produced the research which was done which leads me to conclude it favoured the Retail Price Index. But the inflation issue is for another day except we have an area where out official statistics office has a disappointing track record.
I have seen these reported without context so let me show them and then give the context.
In 2020 as a whole, estimates of the quantity bought decreased by 1.9% when compared with 2019, the largest year-on-year fall on record.
One context is the swings between sectors which we have been looking at today.
Clothing stores (negative 25.1%), fuel stores (negative 22.2%), “other stores” (negative 11.6%) and department stores (negative 5.2%) all recorded record annual declines in sales volumes in 2020 when compared with 2019, non-store retailing, however, saw a record annual increase of 32.0% for 2020.
Another is that we are essentially reporting again the falls in March and April. They mattered at the time but now matter as a overall concept for 2020, but also tell us nothing about where we are now and little or nothing about prospects for 2021.
The simple view of the UK retail sales data is that it is an extraordinary amount of growth in the circumstances. Not many depression sized falls in economic output lead to higher retail sales! But as we have already noted today there has been a large fiscal stimulus which has both directly and indirectly boosted the retail sales numbers. To that extent the fiscal stimulus has been a success although it does pose questions.
Another factor is that gross numbers for the whole economy hide groups affected in the opposite direction. A clear example of that came yesterday. Up to now we have seen savings surged which has been confirmed by the rises in bank deposits in the money supply data. But that gross figure hides this.
By December 2020, nearly 9 million people had to borrow more money than usual, with the proportion borrowing £1,000 or more increasing since June 2020…….At the end of June 2020, 10.8% of adults reported borrowing money, rising to 17.4% in December 2020. Of those, the proportion borrowing more than £1,000 increased from 34.7% to 45.1% in the same period.
So it has been a success but a nuanced success.
We have noted the way that changes in the numbers have led to it being reported that the UK has a national debt or more than 100% of GDP. So with us again borrowing around £30 billion it must be more right? Er no….
Public sector net debt (excluding public sector banks) at the end of December 2020 was equivalent to 99.4% of GDP.
This number will bounce around like a rubber ball if you use monthly GDP. In addition some of it is not debt because some Bank of England activities are counted as debt when they are not. Rather bizarrely that includes recorded profits on its QE bond purchases.
If we were to remove the temporary debt impact of these schemes along with the other transactions relating to the normal operations of the BoE, public sector net debt excluding public sector banks (PSND ex) at the end of December 2020 would reduce by £231.8 billion (or 10.8 percentage points of GDP) to £1,900.0 billion (or 88.6% of GDP).