23rd April 2015
Markets were greeted with the unexpected news on Thursday that retail sales dipped 0.5% month-on-month in March.
While the result was chiefly on the back of a sharp drop in fuel sales as petrol prices rose from their recent lows, retail sales excluding fuel rose by a lower-than-expected 0.2% over the month.
Survey evidence from the British Retail Consortium had indicated robust retail sales in March and it had seemed likely that Easter being right at the start of April would have lifted sales in March.
However Howard Archer, chief UK and European economist, at IHS Global Insight pointed out that retail sales volumes still grew “by a very decent 0.9% quarter-on-quarter” in the first three months of 2015, suggesting that consumer spending made a solid contribution to GDP growth.
But he still suspects that GDP growth slowed to 0.5% quarter-on-quarter in the three months to end of March period, which would be down from 0.6% in both the fourth and third quarters of 2014.
He said: “Concern that GDP growth could have slowed appreciably in the first quarter of 2015 has been fuelled by disappointing industrial production and especially construction output data for February as well as weaker trade data.”
But despite March’s weaker-than-expected performance, Archer asserts the prospects for retail sales and consumer spending look bright, “as purchasing power has strengthened and should continue to do so”.
“Confidence is elevated, employment is high and rising, and inflation is negligible,” he said. “Indeed, consumer prices were flat year-on-year in March, as they had been in February. Meanwhile, underlying earnings growth picked up in February, to 2.2% from 1.6% in January, and pay should strengthen over the coming months given the tighter labour market. Additionally interest rates currently look unlikely to rise until 2016.”