UK retail sales collapse in April

Disappointing April retail sales numbers from the UK, showing the volumes of goods sold fell 2.3% in April, and coming on top of a downwardly revised -0.2% print for March. Much will be made of the unusually wet weather the UK experienced over much of this period, which is likely to have discouraged consumers from venturing out onto high streets and into shopping centres. But that is unlikely to be the whole story and a significant element of the fall – the largest since December – possibly reflects a reluctance on the part of consumers to boost spending in the face of warnings about slowing wages growth and a loosening labour market.

The figures could not have come at a worse time for the government. Having called a general election for 4th July, the numbers suggest the positive boost it was hoping to garner from the cuts made to national insurance contributions (in January and April) have had little impact on consumers’ willingness to spend and have failed to generate any ‘feel good’ factor. And they are unlikely to be welcomed by the BoE either. Although lower spending will help in the battle against inflation, they also point to consumption buckling under the weight of high interest rates and inflationary pressures that are proving difficult to contain – this week’s CPI prints showed annual core CPI still running at 3.9% - making it difficult for the BoE to consider easing the interest rate burden just yet.

Going forward, the situation could start to improve. As households get used to seeing their regular take-home pay boosted by the national insurance cuts, they ought to become increasingly comfortable with spending at least some of it. Alongside this, the April uplifts made to social security benefits and the national living wage should similarly boost spending. In aggregate, these things are estimated to have boosted real disposable incomes by around 0.8%. However, pushing in the opposite direction are likely to be growing fears about the loosening starting to be seen in the labour market as well as the near certainty of tax rises being seen after the general election, if already strained public services are not to be cut back further.

Following the even larger fall in spending seen in December (-3.3%), consumption bounced back quickly, with the January retail sales number posting a +3.9% recovery. The government will be hoping that history repeats itself and we see a similar positive response in May’s numbers. However, with the April figure following the disappointing readings seen in February and March (0.1% and -0.2% respectively), the growing worry is that we are starting to see the emergence of a downwards trend in consumption, something which whichever party wins the July general election will find very difficult to arrest.