It would be easy to assume from the latest retail sales figures that the UK economy is slowing down fast. After all, the amount of goods bought on high streets, in shopping centres, in petrol stations and online, was up just 0.1% in July following a drop of a similar size in June.
That conclusion looks a bit premature. Spending has certainly eased back from the turn of the year when shoppers were feeling the benefit of last autumn’s crashing oil price. But as Martin Beck of the EY Item Club has noted, there was always a bit of a “sugar rush” feel to that spree.
The volume of retail sales in the latest three months – a better guide to the underlying trend than one month’s figures – was up 0.5% on the three months to April. That quarterly rate will drop if the August figure is also weak but there seems no obvious reason why it should be.
There are a number of reasons for expecting retail spending to hold up, at least for the time being. The first is that real incomes are growing at a reasonable lick: inflation is zero and earnings are going up by 2.4% a year.
The second is that the renewed drop in oil prices will generate a second “sugar rush” this autumn, albeit a more modest one than that experienced in 2014. Forecourt prices for petrol and diesel have fallen in recent weeks, and that will boost discretionary spending power.
The third reason is that other areas of consumer spending that are not included in the retail sales data look strong. This is most obviously true of new car sales, which were at their highest ever level for the first half of the year in 2015. Spending in restaurants and bars has also been going up.
It is, of course, possible to envisage the conditions in which shoppers will stop spending. The prospect of higher interest rates from the Bank of England may encourage consumers to save rather than spend any windfall from lower fuel prices. Welfare cuts may depress demand by more than George Osborne has envisaged. But it is not time to hit the panic button yet.
