By Max Clarke
This morning saw the welcome news that the UK’s retail sector is showing the first signs of recovery after a prolonged downturn, with the Office for National Statistics posting growth of 1.3%.
With the news came a host of comments from economists and retail industry actors. Some, including currency expert Nick Jones are optimistic about the news and the country’s future economic performance, while others urge caution, saying that other economic indicators remain depressed and even that the ONS may later revise the figure downwards.
Following are brief comments and analysis:
Said Nick Jones, chief economist at World First currency exchange: “Rumours of the demise of the retail sector have been greatly exaggerated according to today’s figures. The markets were prepped for a terrible figure following the BRC’s recent release and the belief that the UK consumer was refusing to put its hand in its pocket however the pound is starting to reverse recent losses against the euro and the US dollar.
“This retail figure comes after a weak inflation figure and before next week’s crucial Q1 GDP announcement and I believe the UK is set up for a summer of good economic data that shows the recovery is back on track. This also fits nicely in with our long-held belief of a BOE rate rise in August.”
Voicing more caution are Emmanual Hembert, principal at global strategy consultancy A.T. Kearney and Stephen Robertson, Director General of the British Retail Consortium.
“While the retail rebound is a welcome surprise, we would urge caution,” said Hembert. “Optimism over UK retail must be moderated. We believe that the uplift is linked to specific sectors and circumstances - notably the impact of the Royal wedding and unseasonably good weather driving up DIY sales.”
“With regards to the pick-up in food sales, we mustn’t overlook the fact that the generally weak recent results displayed by supermarkets is evidence of a general downward trend. 2011 is the year where consumers are really squeezed and we are seeing a real change in spending patterns. Inflation, public spending cuts and tax increases are contributing to the squeeze on household spend.
“Moreover, a bigger squeeze will come in the case of increased interest rates. In 2010, mortgage interest payments by consumers amounted to £57bn with historically low rates which is bigger than the entire spend on clothing and accessories (£47bn). This illustrates the impact an increase in rates can have on consumer wallets and should temper the optimism the March figures seem to have engendered.”
Failing to share Jones’ optimism is Stephen Robertson: “With DIY, clothing and even food sales suffering, it’s clear customers are cutting back and extremely reluctant to spend despite a mass of promotions and discounts.
“The ONS figures confirm a worrying downward trend for retail sales. Annual growth in sales values is a quarter of what it was in January and the worst since April last year which was hit by the earlier Easter.