There have been some worrying minor indicators popping up today and late last week that are pointing to a deterioration in consumer demand and confidence ahead of retail sales data on Thursday.
The British Retail Consortium/KPMG sales monitor for June showed a fall in like for like sales of 0.8% from June 2013. On a total basis sales rose 0.6% against and a year ago vs a 2.9% gain in June 2013. Stripping out Easter it’s the lowest growth since May 2011.
KPMG’s David McCorquodale says that rate rise fears may be playing a part;
“Concern over a potential rise in interest rates is having a dampening effect on retail sales. June saw the brakes applied to spending as shoppers put purchases of big ticket items on hold whilst they waited to see if the Bank of England would take action on interest rates. Even sales of home accessories and furniture flat-lined, which is surprising given the UK is reportedly in the midst of a housing boom.”
The Lloyds consumer confidence index dropped for the first time this year falling one percentage point to 145. Spending growth on essentials was stable at +1.0% vs June 2013. Gas and electricity spending was around 2.5% lower that last year, but that is mainly due to the better weather we’ve had.
Another piece of the jigsaw is the Markit household finance index which, while at elevated levels, dropped back at the sharpest rate for six months falling to 42.1 in July, from 42.6 in June. The perception of current household finances worsened as did expectations of future finances. Savings also fell the hardest for six months.
While workplace activity rose in the month to 59.3 from 56.8 incomes posted a marginal fall for the second month running with job security sentiment falling the hardest in four months.
With retail sales (ex autos) expected to to rise 0.3% from -0.5% m/m there’s an element of downside risk with these smaller indicators showing a deterioration. May sales would have been worse but for pre-World Cup related clothes buying and that would have continued into June. I know of at least 6 people who shelled out for a new tv (myself included) ahead of the tournament as well as many planning to host events for matches.
While that may have boosted sales in the early part of June, England getting knocked out two games in will likely have seen those related sales crater in the second half of the month. How the balance of that equates to the sales number is unknown but I think that the main risk is to the downside on Thursday and that could mean that we see a sizable move lower in GBP.
Despite the recovery, and as we’ve seen in the US also there seems to be a divide between the main economic indicators and that good news translating into actual pounds, shillings and pence in your average persons pockets. Until we see the pick up on the consumer side then the recoveries are going to struggle to take that next leap higher.
