Partner & Managing Director, London
Through soaring temperatures, retail spending grew by 5.0% in July, above the average rate of 4.2% since the beginning of the year. This continues the strong run of results for the high street this summer, with both May and June also showing high year-over-year growth. Value and volume growth was 5.0% and 3.7% respectively when compared with the same month last year, as several subsectors recovered from a small decline in June.
Particularly strong growth was seen in the food and drink subsector, as a combination of England’s prolonged World Cup campaign and record-breaking weather in July saw consumers splash out on barbeques and garden parties. Cooler indoor temperatures were perhaps a driver for booming internet sales which grew by 15.4% in July 2018 compared to last year.
Despite this year-over-year growth, the retail sector remains a challenging environment. Fashion continues to struggle and although it has returned to slightly positive value and volume growth, it had the lowest growth rate of all subsets in July. This is evidenced by the recent CVA at New Look and the prepack administration sale of Henri Lloyd. Shoppers continued to avoid spending disposable income on fashion as total earnings growth slowed down this month.
The Office of National Statistics reported a further decrease in the rate of unemployment from 4.2% in the three months to June to 4.0% in the three months to July. However, a reduction in total earnings growth goes some way to offset this slight improvement.
Whilst the extreme weather may have finally come to an end, its aftermath will continue to be felt in the coming months: the UK saw record temperatures in June, July and August which caused widespread drought and crop failures resulting in a forecasted price increase of food by as much as 5%.
Overall the sector performed well in July and retailers are hopeful the positive trend will continue.
There was a small overall improvement in the rate of unemployment reducing to 4.0%, down by 50,000 to 1.36 million in June 2018. The number of people aged 16 to 24 looking for work was the lowest since records began in 1992. The number of job vacancies reached yet another record high of 829,000, an increase of 5,000 despite a decrease in the number of unemployed suggesting a net expansion in the overall number of jobs in the UK.
UK workers' total earnings, including bonuses, increased by 2.4% in the three months to June. However, the ONS said “average weekly earnings for employees in Great Britain in real terms (that is, adjusted for price inflation) increased by 0.4% excluding bonuses, and by 0.1% including bonuses, compared with a year earlier".
The positive effect of reduced unemployment is offset by a slowdown in the total earnings growth rate which suggests the UK economy still has some way to go to demonstrate strength and stability, particularly with the continued uncertainty around Brexit.
Consumer credit increased by £462 million to £213.5 billion in July, representing a 5.9% increase when compared to the same month in the previous year.
UK consumer loans in July dipped to the slowest growth rate seen in three years, a trend likely to continue into August following the Bank of England’s decision to raise rates by a quarter of a percentage point from 0.5% to 0.75%.
This could point towards weaker levels of spending in the economy in the coming months, paving the way for weaker economic growth. High street retailers are already feeling the crunch of reduced consumer spending since the EU referendum and the recent reduced wage growth combined with higher levels of inflation.
Temperatures reached a staggering 35.3 °C in July (recorded in Faversham, Kent) as the country was dominated by high pressure particularly in the first half of the month. The mean temperature for the month was 17.3 °C, which is 2.2 °C above the 1981-2010 long-term average, making it the joint second warmest July since 1910.
This has undoubtedly impacted the level of footfall which decreased from -2.6% reported in June (an already warm and dry month) to -4.0%, the largest fall since October 2017, and it will be interesting to see the change in coming months as more typical weather conditions arrive.
Annual house price growth increased slightly in July to 2.5%, back in line with the average growth rate over the past 12 months, according to the latest data from Nationwide. This reflects an increase of 0.6% between June and July.
Sam Mitchell, chief executive of online estate agents Housesimple.com commented: "For the past decade we have ridden a rollercoaster of rising and falling prices, but right now it seems to tick up a little one month and tick down a little the next."
"On the ground, there has been a noticeable increase in properties being listed, and there are still enough sales progressing that the market hasn't ground to a halt, but they are progressing at a steady rate.”
A move in the Bank rate from 0.5% to 0.75% would only have a "modest impact" on households, according to Nationwide's chief economist Robert Gardner, with those on a variable rate mortgage seeing their monthly bill rise by about £16.