U.K. Retail Sales Step Back in June as Confidence Continues to Climb

U.K. retail sales in June fell by 1.3% after rising by 3.3% in May and falling by 2% month-to-month in April. The performance of two key industries, the food, beverages & tobacco complex, as well as clothing & footwear follows the same pattern with June declines, May increases, and April drops. April showers may have brought May flowers but then June sales soured.

Sequentially U.K. retail sales rise by 0.6% over 12 months, accelerate to an 8.3% annual rate over six months, but then decline at a 0.7% annual rate over three months.

Real sales Retail sales volumes, which refer to retail sales adjusted for price, show the same pattern as the overall retail sales, declining by 1.2% in June, rising by 2.9% in May, and then falling by 1.5% in April. U.K. retail sales volumes fall by 0.2% over 12 months, accelerate to a 7.6% annual rate of increase over six months and then slow but continue to rise at a 0.4% annual rate over three months. The retail sales pattern is not clear on whether acceleration or even growth is going to endure because the 3-month growth rate is so low, but there has been a strong improvement over six months and retail sales volumes numbers show only a slight decline over 12 months. On balance, this retail sales pattern is consistent with the idea that U.K. retail sales are stabilizing and are ready to continue to advance. Certainly, the performance of consumer confidence suggests that that's what's waiting in the wings; however, the trends themselves are indeterminate.

Car registrations One volatile element of consumer spending is spending on passenger cars. Passenger car registrations had risen strongly for two months in a row, gaining 3.1% in June and 3.3% in May. Those two very solid and strong months, however, follow an even larger decline of 8.8% in April. As a result, passenger car registrations reveal a decelerating profile based on the sequential growth rates. Over 12 months passenger car registrations rise at a 2.4% pace, over six months they fall at a 4.7% annual rate, and over three months they fall at an 11.1% annual rate. The persistent decline in spending on this big-ticket item is a bit unsettling, but on the other hand, the 3-month growth rate gets all its weakness from April whereas June and May show a sharp rebound after that April decline. Even though we're looking at sequential deterioration, it is sequential deterioration with some optimistic results being reported in the recent two months.

CBI surveys and confidence U.K. retail surveys on the month from the Confederation of British Industry (CBI) show sales for the time of year with a -41 diffusion assessment in June compared to a +22 in May. The volume of orders year-over-year register a net diffusion reading of -3 in June compared to +38 in May. Both those series posted negative numbers in April. The ups and downs of the CBI series follow the ups and downs of both real and nominal retail sales in the most recent three months. The CBI survey of retail sales for time of year does not offer a clear pattern either. When we look at the change from 12-months to 6-months, to 3-months, there is no clear trend. However, over each horizon, ‘sales for time of year’ post a negative number. The ‘volume of orders year-over-year’ logs a negative number over 12 months but then two positive numbers over three months and six months. But there is no steady progression in place so as the trend indicator there's no clarity in the volume of orders. Over three and six months, both readings are now positive numbers. Consumer confidence has a positive reading in April, May, and June that also shows consistently positive readings over three months, six months, and 12 months.

Quarter to date The quarter-to-date metrics, which are at this point for completed Q2 in the U.K., show declines in nominal sales in food and clothing industries as well as a decline in retail sales volumes and a decline for passenger car registrations. CBI retail sales for the time of year and CBI order volumes year-over-year both post negative numbers although GfK consumer confidence shows an increase. The second quarter was not particularly good for retail sales or their indicators in the U.K.

Growth has been quite weak In addition, the far-right hand column gives us the standings of the indicators and the growth rates on data back to early 2000. On that basis, sales have been weaker than they currently are only 10.8% of the time, although real volumes are holding up better: they have been weaker 28% of the time. Passenger car registrations have a standing at 56.5% which means they are above their median and have been stronger less than 45% of the time. The CBI survey has continued to spin out weak numbers with the retail sales ‘for time of year’ lower than the current reading only 5.4% of the time historically. The CBI ‘volume of orders year-over-year’ historically has been weaker only 26.1% of the time. Consumer confidence is closer to neutral with a 45.1 percentile standing a data back to early 2000s.

The way ahead The U.K. consumer has clearly been in a soft patch. Retail sales growth in both real and nominal terms is quite weak compared to what it's been over the past two decades. Passenger car registrations are slightly above their median for this period, a reading we could construe as ‘normal.’ Meanwhile, the CBI assessments continue to run to very weak readings and the GfK consumer confidence shows confidence returning toward normalcy. The Bank of England, of course, is and has been, focused on containing inflation that it seems to be getting under control. The Bank of England has not yet tipped its hand on what policy is going to do although there is some clear split among monetary policy members; it's fair to say that in the U.K., as in the European Monetary Union, and as in the United States, monetary policy officials are going to be watching data and trends carefully. They will be making policy based upon how the trends turn out rather than based upon some preconceived theory or notion of what policy should be formed before they see data.