January retail sales drop as inflation starts to bite

UK retail sales appear to be taking a hit from higher inflation, falling 0.3 per cent month-on-month in January, in contrast to an expected gain of 0.9 per cent.

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Feb 16, 2017

It follows a drop of 2.1 per cent in December and signals potential problems ahead for the UK economy.

Inflation figures this week reached 1.8 per cent.

Overall these are very weak and disappointing numbers and sterling has reacted by falling off by close to half a percent immediately after the release,” says Helal Miah, investment research analyst at The Share Centre.

“In some ways, these figures should not come as too much of a surprise to the market, given that the recent trading updates from major non-food retailers have been quite disappointing.

“Yet, it will raise questions about Brexit and whether we will slowly see a build of negative trends in economic data. Business confidence has already been dipping,” Miah says.

In positive news, Miah says the figures lessen the chance of interest rate rises anytime in the near future.

IHS Markit chief economist for UK and Europe Howard Archer says the economy’s resilience following the UK’s vote to leave the European Union has been largely built on consumer spending.

“If consumers really are now beginning to moderate their spending, the long anticipated slowdown in the economy may be about to materialise,” Archer says.

“It also looks highly likely that some retail sales were pulled forward to the latter months of 2016 as consumers sought to beat expected rising prices.”

Archer says it looks “more likely than not” that inflation will move above earnings growth in 2017. He forecasts inflation will reach 3 per cent by the end of the year and peak at 3.3 per cent in the early months of 2018.

Helal Miah says the retail sector is in for a tough 2017. “The upcoming rise in business rates will be a further blow to retailers with a physical presence who are already facing stiff competition from online operators and have to decide on whether to pass on import cost onto the consumer.”

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John 6 months ago

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John 6 months ago