Events | 2010.08.19
Retail sales figures flatter to deceive | Larry Elliott
The headwinds facing the economy mean that July\'s retail sales data is almost certainly a last hurrah for the consumer
The strength of today\'s figures for high street spending caught all analysts by surprise. With consumer confidence wilting, house prices edging back downwards, prices rising and the threat of public spending cuts looming over the economy, the City was expecting only a modest increase in retail sales in July. The 1.1% jump in the volume of activity was three times higher than analysts had bargained for.
So what\'s happening? The first explanation is the obvious one: a combination of ultra-low interest rates and the electronic money pumped into the economy through quantitative easing is having an effect. For those people who have survived the recession without losing their job, cheap money means the cost of servicing their mortgage has come down sharply, leaving them with more money to spend in the shops. The economy overall, remember, grew by 1.1% in the second quarter of 2010, so the strength of retail sales last month could simply reflect a continuation of this trend.
This version of events, however, does not entirely square with other recent economic data. Consumer and business confidence, as the Bank of England noted yesterday in the August minutes of the monetary policy committee , has been dented by all the talk of austerity to come. The Bank today issued its Trends in Lending report for July, showing a drop in mortgage approvals to 47,000 – their lowest level in more than a year – coupled with a fresh fall in lending to businesses. Lending overall is growing more slowly than at any time since modern records began in 1983.
None of that suggests that consumers are out there in the shopping malls flashing the plastic with gay abandon. But it is worth noting that the inflation figures released earlier this week showed hefty discounting in the summer sales – particularly in the clothing and footwear sector. Never underestimate the ability of the great British consumer to truffle out a bargain.
That said, this is probably one of the occasions when it is wise to heed the advice of the ONS about not reading too much into one month\'s figures. If the figures really are as good as they look, it is hard to see interest rates staying at their current emergency level of 0.5% for much longer, particularly given the stubbornly high level of inflation.
But the headwinds facing the economy mean today\'s data almost certainly flatters to deceive. The strength of retail sales in July is likely to prove a last hurrah for the consumer before the belt-tightening begins in earnest.
For more information, please visit
http://www.guardian.co.uk/business/2010/[...]es-figures-flatter-to-deceiver
