UK retail experienced its 45th consecutive month of year-on-year sales growth in September, with relatively resilient consumer spending challenging a deteriorating economic outlook. However, macroeconomic indicators continue to be a cause of concern for retailers with house prices, employment and consumer credit growth all declining in the latest data release.

Retail remains a polarised sector, as positive data masks challenging market conditions

UK retail continued its trend with another month of like-for-like growth in September, posting value and volume growth of 3.6% and 3.0% respectively, despite the turbulent macroeconomic conditions.

At a subsector level, the strongest performances in the month were food and fashion, with weak growth remaining in department stores and household goods – subsectors that continue to be plagued by underlying structural issues and pressure on big ticket purchases.

The continued downward trend in footfall showed no signs of easing, with the numbers of consumers visiting the high street decreasing by 4.7%. Once again, the East and North West performed particularly poorly, with declines of 8.2% and 6.2% respectively.

Although September was a positive month for retail sales, the broader backdrop and short-term trend remains challenging and several retailers are reporting extremely difficult trading conditions.

Underlying labour market remains resilient, however Brexit uncertainty beginning to cause disruption

The UK unemployment rate unexpectedly rose by 0.1% to 3.9% in the three months to August, as Brexit uncertainty finally took its toll on one of the most resilient areas of the UK economy.

Worryingly for retailers, this negative sentiment is translating into earnings, with total earnings growth rate slowing to 3.8%, down from 4.0% in the three months to July.

As we move towards 2020, economic data suggests that the UK labour market is set to soften further, driven by falling demand and limited corporate confidence. In the three months to August, the number of vacancies fell by 11,000 to 813,000, the lowest level since November 2017 – an ominous sign for the coming months.

Consumer credit growth continues to decline, pointing towards bearish economic outlook

August saw consumer credit increase by just £456m, an annual growth rate of 2.1%. This represents a significant slowdown when compared to the 5.6% growth rate experienced just 12 months ago. This trend is likely to be of some concern to retailers, with consumer borrowing having helped to drive spending.

Elsewhere, average house prices in the UK fell by £744 to £215,352 in September, as property prices continued to stagnate. Given the uncertainty around the domestic economy, the UK property market is also likely to offer little support to retail spending in the coming months.

figure 1 value and volume october 19 01
figure 2 subsector breakdown october 19  01
figure 3 unemployment and footfall breakdown october 19  01