Is the retail sector ever going to recover from Covid-19? The rest of the economy seems to be purring quite nicely at the moment, with GDP up 0.7 per cent in the first quarter (not adjusting for population growth). But the good times have yet to reach the retail sector, where sales volumes fell by 1.2 per cent in June. This followed a surprise 2.9 per cent rise in May, but over the second quarter as a whole sales were down 0.1 per cent. Compared with the second quarter of 2023, sales were down 0.2 per cent. Overall, sales were 1.3 per cent lower last month than they were in February 2020, on the eve of the pandemic.
One conclusion from today’s release is that retail sales figures are too volatile to be read month on month – they should really be read quarter on quarter. Apart from that, there is little comfort for anyone running a shop, online or otherwise. The only sales to rise in volume were those of automotive fuel. People seem to be travelling a bit more (and by petrol vehicle, too, in spite of the efforts of the car industry to turn us electric).
Retailers had things to blame, as ever. The Office of National Statistics suggests they attribute the drop to poor weather and ‘election uncertainty’ (although June was relatively dry in most places compared with other recent months). It is hard to believe that ‘election uncertainty’ played much of a part, either. The outcome was anything but uncertain – although we have yet to see Rachel Reeves’ budget, which may make a difference as to how much money people have in their pockets.
There does seem to have been a distinct trend since the pandemic, however. People are buying a little less stuff and spending a bit more of their money on ‘experiences’ – eating out, going to concerts and the like. This is not altogether surprising. Compared with previous generations young people are more likely to be renting, living in smaller properties, or still living with their parents. They are therefore less inclined to spend money on their homes and more inclined to spend money getting out of the house.
What does it mean for interest rates? Today’s retail figures are not going to scare the Bank of England. Earnings, though, will continue to cause concern given that they are running some way ahead of inflation. The story of 2024 was supposed to be one of gradually falling interest rates, helping to revive the housing market along with other sections of the economy. It is turning instead into a story of endlessly-postponed rate cuts. That doesn’t mean the economy can’t recover, however. At 5.25 per cent the base rate is still quite low by the standards of the past half century – even if many people are too young to remember rates of 10 per cent and above.
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