UK: Shopping spending spree – ING

James Smith, Economist at ING, suggests that after a very disappointing set of retail sales data last month, UK spending rebounded in earnest during April – although the volatility in this data over the past few months warrants caution.

Key Quotes

“Retail sales rebounded across the board in April, with the ex-auto fuel measure increasing by 1.5% MoM (after an upwardly revised -0.7% figure in March), led by strong sales in most categories. This is at odds with recent readings from the GfK consumer confidence survey, which suggests that consumers are becoming less optimistic on the economic spending over the next year, perhaps in response to the forthcoming EU referendum. But this retail sales data firmly supports the notion that, although at the margin spending may be affected by referendum-related uncertainty, the backdrop of a tight labour market and rising real wages are likely to continue supporting spending in the near-term.

That said, it is worth noting though that this series has been very volatile, in particular since last year’s Rugby World Cup (hosted in the UK), which suggests that the large drop last month and subsequent rebound this month could be as much to do with statistical factors as economic ones.

This concludes a week of fairly mixed UK data, with employment and retail sales better than expected, but sub-consensus news on prices and wages. Overall, we feel that economic growth in the second quarter is likely to be weaker than the first (INGF 0.3%), as referendum uncertainty appears to be weighing on hiring/investment intentions (according to recent survey evidence). This means that further data weakness in the near-term should be expected. Should the UK vote to remain in the EU, then we expect activity to rebound, albeit fairly slowly and with a lag, which means that the first BoE rate hike is unlikely to come before 1Q17. If the UK votes to leave the EU, then there is a strong change that the BoE cuts interest rates to shore up confidence.”