Online discounts and the hot summer weather have encouraged an uplift in retail sales, with the latest official statistics showing a rise in July and survey data pointing to further growth in August and September.
This was the first increase in three months and confounded economists’ expectations of a small monthly decline. Growth was largely driven by a surge in online and mail order sales, which recorded their sharpest rise since December.
July saw Amazon hold its annual Prime Day promotion, although ONS did say that greater spending was seen across a number of online retailers, with sales figures boosted by ‘a range of offers and promotions.’ The British Retail Consortium also noted that ‘the summer sunshine’ had provided a boost to the figures, with sales of ‘summer clothing, air conditioning appliances and outdoor foods’ all benefitting from record temperatures.
Evidence from the latest CBI Distributive Trades Survey also suggests the retail sector enjoyed a further uplift in sales last month, with the net balance of retailers reporting year-on-year sales growth jumping to +37 in August from -4 in July; this represents the strongest reading in nine months. In addition, retailers said they expect to see another rise in sales this month.
The CBI survey did, however, note an air of pessimism when it comes to the future business outlook. Other data released last month also highlighted growing concerns across the UK household sector, with GfK’s long-running Consumer Confidence Index falling to a low of -44 in August. Measures of households’ assessment of the general economic situation and their personal finances both declined last month, which GfK said reflected ‘acute concerns as the cost-of-living soars.’
Bank hikes rates
In early August, the largest increase in interest rates for more than a quarter of a century was sanctioned by the Bank of England (BoE) as it continues its efforts to contain the rate of inflation.
At a meeting which concluded on 4 August, the BoE’s nine-member Monetary Policy Committee (MPC) voted by a majority of eight to one to raise Bank Rate by half a percentage point to 1.75%. This was the sixth increase since December and took rates to their highest level since late 2008.
Minutes to the meeting noted that inflationary pressures had ‘intensified significantly’ since the previous meeting held in mid-June, largely due to the impact of Russia’s invasion of Ukraine on energy prices. A readiness to ‘act forcefully’ to indications of more persistent inflationary pressures was again reiterated, but the minutes also stressed that the MPC would assess its next move as events unfolded and that policy was ‘not on a pre-set path.’
When announcing the rate decision, the Bank also provided an update of its view on the future path of inflation, warning that it now expects the Consumer Prices Index (CPI) to peak at ‘just over 13%’ in the final quarter of this year. It then expects inflation to remain at ‘very elevated levels’ throughout much of next year before returning to its target level of 2% in 2024.
Meanwhile, the latest data released by ONS showed that soaring food costs pushed the rate of inflation into double digits for the first time since 1982. In the 12 months to July, the CPI rate jumped to 10.1%, a sharp increase from June’s 9.4% figure and above all forecasts submitted in a Reuters poll of economists. This rise further fuelled expectations of another interest rate hike when the MPC next convenes in mid-September.