With fewer COVID-19 cases across the country, UK retail sales were strong in August and above pre-pandemic levels. However, with new restrictions announced in September, and fears of a second full lockdown, there remain questions about the sustainability of the recovery.

Winners and losers as retail sales continue to rebound

Total retail sales grew for the third consecutive month in August, reporting strong year-on-year value and volume growth of 4.4% and 4.3% respectively.

At a subsector level, there was strong growth in food, household goods and non-store retailing, demonstrating that the recovery continues to be led by essential, DIY and online shopping. There were large declines in sales in both fashion and department stores as the low number of COVID-19 cases and the subsequent relaxation of restrictions appeared to offer little stimulus.

As with previous months, UK retail continues to remain incredibly fragmented with winners and losers resulting from the pandemic. Reflecting the disparity within the sector, non-store retailing volumes in August were 38.9% higher than February, while fashion stores were still 15.9% below pre-pandemic levels.

Similar patterns can also be seen when comparing the high street with online sales. While internet retailing enjoyed another strong month, with sales increasing by 51.6% compared to last year, footfall fell by a huge 41.6% in August as consumers continued to shun physical stores.

At a macroeconomic level, August will be seen as a positive month for UK retail, with strong year-on-year growth. The broader backdrop, however, remains one of intense and fast-moving change, with those retailers unable to adapt to the "new normal" with agile and flexible cost bases, likely to struggle.

Unemployment rises as Chancellor launches new support scheme

Unemployment increased by 0.2% to 4.1% in the three months to July, as redundancies rose at the sharpest rate since 2009. The number of people employed in the UK is now down by 695,000 compared to March when the lockdown began.

With the furlough scheme due to end in October and increased restrictions expected over the winter period, unemployment is expected to increase further over the coming months. Reflecting concerns across the political spectrum that the furlough scheme is ending too early, Chancellor Rishi Sunak has announced an emergency jobs scheme which will continue to top up wages of employees who have not been able to return to the workplace fully.

The average price of UK property reached an all-time high of £224,123 in August, as a result of pent-up demand and behavioral shifts as people look to reassess their housing needs post-COVID-19. As we approach the new year, however, the market is likely to be impacted by lower consumer confidence, a less robust labor market, and increased political uncertainty around Brexit.

figure 1 value and volume sep 20 v01
figure 2 subsector breakdown sep 20 v01
figure 3 unemployment and footfall breakdown sep 20 v01