Managing Director, London
UK retail continued its strong year with another month of like-for-like growth in November, posting high value and volume growth of 4.4% and 3.8% respectively, helped along by Black Friday.
Whilst this is welcome news for the industry, the broader backdrop for the sector remains challenging as high street retailers continue to struggle. Black Friday's increasing dominance as an online-only sales event has meant UK retail endured the biggest drop in footfall for the month of November since 2009, despite frantic discounting from high street retailers.
The shift to online sales shows no signs of subsiding over the coming months, with Next seeing online sales growth of 15% throughout the course of 2018. This comes despite in-store sales declining by 9.2% this year.
Brexit continues to cause uncertainty within the sector, with executives from companies including Tesco and Amazon taking part in an emergency conference call with cabinet ministers after the Government lost its "meaningful vote" on the Withdrawal Agreement. Retailers are increasingly stepping up their no-deal contingency plans, which have included bringing forward stock purchasing.
Overall, the UK economy continued to follow the trends seen throughout the year, with wages rising in real terms as unemployment remains at a record low of 4.0%. Driven by Brexit uncertainties, consumer credit growth continues to slow down while UK property prices remain stagnant.
Initial reports on Christmas trading from Next, Debenhams and M&S were mixed, with sales at Next up by 1.5% and Debenhams and M&S down by 5.7% and 2.2% respectively.
As we head into 2019, the retail sector is likely to be polarised with winners and losers.
UK unemployment remains close to its 43-year low of 4.0%, with competition for workers driving UK wage growth to its highest level for almost a decade. Labour demand showed no signs of slowing down, with outstanding vacancies reaching yet another record high of 848,000.
The UK pay growth rate continues to exceed consumer price inflation which declined to 2.3% in November, providing a welcome boost to UK households. With the rate of inflation anticipated to fall to the Bank of England's target of 2% over the coming months, the trend of real wage growth shows no sign of subsiding.
Consumer credit increased by £451 million to £215.4 billion in November, representing a 4.4% increase when compared to the same month in the previous year.
Year-on-year growth rates have declined significantly in recent months, as consumers cut back on spending following the UK's summer heatwave and England's world cup success. Consumers continue to be unsettled by economic uncertainty, with consumer confidence dropping to its lowest level in five years according to GfK's long running consumer confidence index.
While the decline in consumer credit growth will come as welcome news to the Bank of England who are keen to see household debt decline, reduced consumer borrowing is likely to point towards weaker economic growth over the coming months, a concerning outlook for the UK's embattled retailers.
The downward trend in footfall continues, with November's figure declining by 4.5% in comparison with the last year. All regions across the UK reported negative growth, with the severity of decline particularly acute in Yorkshire and The Humber and the North West, which reported decreases of 7.0% and 6.3% respectively.
November's decline will be particularly concerning for bricks-and-mortar retailers, whose deep discounting in the month failed to entice consumers back onto the high street.
The housing market continued to stagnate in November, with the average UK house price declining by £490 to £214,044. Year-on-year house price growth has softened considerably in recent months, falling from 3.2% in January, to 2.5% in July and 1.9% in November.
Property prices continue to be sensitive to the wider economic and political outlook and specifically the uncertainty surrounding the UK's withdrawal from the European Union.
Kevin Roberts, director of the Legal & General Mortgage Club, commented "The ongoing political uncertainty is clearly causing some buyers and sellers to take a wait-and-see approach when it comes to the property market".
Given the uncertainty predicted for 2019, the UK property market is likely to do little to support retail spending over the coming months. The slow-down in the market is anticipated to continue throughout the year, with Nationwide predicting "low single-digit" price growth over the course of 2019.