Insight

UK attention to retail: wage slump hits the high street as growth falters in September

November 2017

After a strong August, retailers suffered from a weak September, with growth well behind market expectations.1 Although surging inflation drove sales growth, 4.6% when compared with September 2016, growth in volume terms lagged behind at 1.6%.

The industry faced serious economic headwinds in September, with inflation hitting 3% and real wages contracting by 0.4%. Retailers may be feeling relieved that despite the difficult conditions, they were able to post year-on-year growth, even if it was lower than expected. Fashion proved particularly resilient, posting volume growth of 7.2%.

Costs continue to rise due to the weaker pound. As household incomes contract, retailers will have to decide whether to absorb the costs themselves or pass them onto consumers through higher prices.

As always, the final three months of 2017 are a crucial trading period for the high street, encompassing both Christmas shopping period and Black Friday. Retailers will hope that consumer confidence can hold on until the new year despite the mixed economic outlook.

UNEMPLOYMENT

Unemployment remained at its 42-year low at 4.3% in the three months to August, while the downward pressure on wages showed no signs of abating. After adjusting for inflation, real wages decreased by 0.4%, drawing the attention of politicians and central bankers alike.

The figures will further complicate the Bank of England’s decision regarding further rates rises, as it tries to balance raising rates to cool inflation without putting too much pressure on consumers’ already contracting spending power.

CONSUMER CREDIT

Consumer credit annual growth approached double figures in September, reaching 9.9% for 2017, despite the Bank of England’s warning that lenders could be over-exposed. Credit growth has softened the impact of a declining real wage on retailers by keeping household spending flat. However, banks have recently come under increased scrutiny to curb excessive lending.

According to a recent survey, lenders are finally listening to the Bank of England’s warnings and are planning a squeeze on consumer credit on a scale not seen since the 2008 financial crisis.

FOOTFALL

Footfall continued its decline in September, albeit at a slower pace than we saw earlier in 2017. Visitors to the high street declined by 1.9% compared with an average decline for the year of 2.7%, with footfall in Northern Ireland holding flat.

Eastern England remained brick-and-motor retailers’ most difficult location, with footfall declining by 3.6%. This contributes to a year-on-year decline of 6.8%, the worst in the UK.

PROPERTY PRICES

The average house price decreased by £379 in September, bringing the annual rate of house price growth to 2% in September, compared with 2.1% in August. Although the slight monthly decline is not an immediate cause for concern, annual growth remains substantially behind than the 4-5% growth seen in 2016.

London was the worst performing region for the first time in the UK since 2005, with prices falling in annual terms by 0.6% in Q3. The East Midlands, by contrast, was the strongest performing region for the first time since 2002, with prices up 5.1% year-on-year.

1   Office for National Statistics 

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