James Smith, Developed Markets Economist at ING, explains that at face value, the solid 1.3% increase in UK retail sales during April suggests that the high street managed to regain some poise after a particularly tough first quarter.
“This doesn’t really tally with other data – footfall fell again in April, whilst payments company Visa noted a further drop in spending. For this reason, we don’t think the retail sector is out of the woods just yet.”
“Consumers remain cautious, not just about their finances, but also about the economic situation more generally. And whilst the worst of the household squeeze has passed, real incomes are still more or less flat. At the same time, consumer credit appears to have plunged recently. This may prove to be a blip, but given that borrowing appears to have played a key role in financing day-to-day spending over the past year or so, this could be a bad omen for growth.”
“We think the fragile retail sector is the biggest risk to a summer Bank of England rate hike. Admittedly, with wage growth showing some signs of life over recent months, our feeling from recent BoE communication is that policymakers would like to hike again in August if the data allows them to.”