Partner & Managing Director, London
Following a sluggish performance throughout the first half of 2016, the UK retail market has rebounded in the aftermath of the referendum vote. Consumer spending was solid in the run up to Christmas.
Nonetheless, retailers would be unwise to show complacency after a recent survey by research institution GfK indicated cracks in consumer confidence and the distinct possibility of rising inflation through 2017 could be set to squeeze disposable income.
The UK retail market reported value and volume growth of 5.8% and 6.6% respectively when compared with November 2015, as discounts on Black Friday and Cyber Monday helped drive strong sales for department stores and those selling electrical goods in particular. Much of this expenditure took place through digital channels, with IMRG estimating that online sales on Black Friday were up 16% on 2015 as shoppers used their computers, tablets and mobiles to seek out the best deals.
However analysts also highlighted the recent spike in inflation to 1.2%, as the 15% devaluation in sterling since June and subsequent rise in import costs started to precipitate through price increases. The sentiment is echoed across the industry, with large players such as Next, Apple and Microsoft all indicating likely price hikes in the future.
The unemployment rate remained at 4.8% in the three months to October 2016, the lowest level since September 2005.
The latest figures are further confirmation that the labour market has proved resilient in the immediate aftermath of the referendum, despite predictions from the Bank of England and other institutions that the leave result would push up unemployment.
Nonetheless, the Office of National Statistics also warned there were signs that the labour market may be cooling, after employment growth slowed down sharply, which may reflect a curb in firms’ recruitment plans.
The Bank of England reported that unsecured consumer credit is rising at its fastest rate since 2005, as borrowing through credit cards, loans and overdrafts rose to £192.2 billion in November.
IHS Global Insight commented that the high levels of borrowing tied in with November’s strong retail sales. However, the data also fuels concern over the sustainability of this borrowing, after the ONS also recently revealed that the household savings ratio has fallen to 4.4%, its lowest level since 1963.
Along with temperatures, retail footfall plunged in November as the UK experienced a cold snap and stormy weather in some parts.
Whilst Black Friday footfall rose marginally, this was not enough to reverse the firmly downward trend and all areas of the UK experienced negative growth except for Northern Ireland.
Generally, the only good news was for retail parks, which continued to buck the trend and report modest increases in footfall.
Average house prices remained relatively static at £204,947 in November 2016, which reflects annual growth of 4.4%.
Nationwide’s Chief Economist reported that there were signs that demand had strengthened in recent months, reflecting solid labour market conditions and historically low borrowing costs.