The impact of coronavirus on retailers and their supply chains will soon become apparent, but in the meantime, January has seen some respite for the sector with a return to year-on-year value and volume growth. 

The labour market remained robust, with unemployment at 45-year lows, and UK earnings climbing above the pre-financial peak for the first time in more than 10 years. Elsewhere, footfall and consumer credit growth continued to decline, mirroring long-term trends.

2020 kicks off with value and volume growth for UK retail

Following a disappointing Christmas trading period, UK retail saw a positive start to 2020, with value and volume growth of 2.2% and 1.2% respectively.

At a subsector level, there was strong growth in non-store retailing and other stores, while fashion rebounded from a weak final quarter of 2019. Unfortunately, there was no respite for department stores, which saw a ninth consecutive month of decline as they continue to face challenging structural issues.

Footfall continued its downward trajectory with year-on-year declines of 4.1%. However, there were signs of this easing, with five of the 11 regions reporting increases, as January’s mild temperatures encouraged consumers to return to the high street.

While short term uncertainty relating to Brexit is finally showing signs of lifting, the UK’s retailers face a new challenge, with the global spread of Coronavirus threating supply chains and consumer demand.

Good news for labour market as average pay rises

The UK labour market remained buoyant in the three months to December – with unemployment remaining at the 45-year low of 3.8%. While earnings growth slowed to 2.9%, the slowest rise since 2018, average pay excluding bonuses rose above the pre-financial crisis peak for the first time since 2009 – a significant milestone for the UK economy.

Despite the positive headline figures, regional variations in the UK labour market continue to be evident. According to a recent IPPR North study, over the last decade London has benefited from 32% of the net increase in jobs, despite having just 16% of England’s population.

Modest house price growth

The average price of UK property increased slightly in December to £215,897, reflecting modest year-on-year growth of just 1.9%. Despite healthy labour market conditions and low borrowing costs, consumer confidence and domestic economic house price growth looks set to remain subdued as we enter the early months of 2020.

The Bank of England reported that consumer credit fell sharply by £1.3bn in December, an annual growth rate of just 2.3%, significantly below recent trends. With Sajid Javid’s shock resignation and Rishi Sunak taking over as Chancellor of the Exchequer, the government looks set to adopt a more expansionary fiscal approach in March’s budget, which could be welcome news for retailers.

figure 2 subsector breakdown february 20 01
figure 1 value and volume february 20 01
figure 3 unemployment and footfall breakdown february 20  01