UK Retail Sales Slump by Largest Rate on Record

- Record slump in UK retail sales
- But internet sales hit a new record
- Expect April data to be even worse

Image © Adobe Images

The fall in retail sales witnessed in March is the largest on record, and economists say a further large decline is likely in April.

According to ONS statistics out on Friday, the UK experienced a 5.1% month on month fall in retail sales in March, deeper than the consensus estimate for a reading of -4.0%.

This was the largest decline ever recorded by the ONS and highlights the scale of the current downturn in consumer activity, that will have significant negative implications for the wider economy.

However, because the lockdown was only introduced in the middle of March, "a further big decline is almost guaranteed in April," says Thomas Pugh, UK Economist at Capital Economics.

Clothing store sales saw a sharp fall when compared with the previous month, at negative 34.8%, which is easily understood given the wide-spread shutdowns of high-street outlets aimed at halting the spread of the coronavirus.

The UK's lockdown supermarket buying spree was also evident as food stores and non-store retailing were the only sectors to show growth in the monthly volume series in March 2020, with food stores seeing the strongest growth on record, at 10.4%.

Alcohol sales shot up 31.4%, as drinkers could no longer head to pubs and restaurants.

It will also come as little surprise that online retailers saw a pick up in business as the populace was confined to their homes with online sales as a proportion of all retailing reached a record high of 22.3% in March 2020.

"With widespread lockdowns only beginning around the middle of the March, retail spending looks like it will fall by much more in April, perhaps around 20%-30% m/m. Clearly there is huge uncertainty as to how deep the downturn proves and how long restrictions remain in place, a fall in the region of 25% in GDP over the next few months seems likely," says Pugh.

The previous record slumps in retail sales were recorded at -3.6% in January 2010 and -3.5% in June 2008.

"The record slump in consumer confidence in April suggest that the fall in retail sales will hit a new record in April," says Kallum Pickering, Senior Economist at Berenberg Bank. "Consumer confidence collapsed in April. While consumer confidence only roughly correlates with household spending, the scale of the drops across key indicators suggests that spending plunged even further in April."

Despite expectations for worse to come for the retail sector, Pickering does see some light ahead, largely on the basis that the fall in consumer confidence could have been a great deal worse were it not for the intervention of UK authorities.

"Given the unprecedented plunge in economic output in March and April – perhaps by around 30% from the February level – it is surprising that headline confidence did not hit an all time low in April. It could be that the aggressive policy measures by the Bank of England and HM Treasury, especially the generous employment subsidy scheme, have helped to soften the shock somewhat," says Pickering.

Image courtesy of Berenberg.

"With luck, April will be the bottom of the coronavirus recession in the UK and across the rest of Europe as the lockdowns begin to ease. If that happens confidence may begin to recover already by next month," says Pickering.

The retail sales data comes a day after it was reported that the UK economy suffered an unprecedented seizure in the March-April period based on the first wholistic set of data covering the coronavirus lockdown period, and economists are warning that the recovery out of the crisis will be slow.

The IHS Markit Composite PMI for April read at 12.9, which is substantially below the 31 that was expected by the market and well below the 36 reported in March, which signals GDP could be down by around 6% in the past month alone.

The decline in economic activity was primarily driven by a slump to 12.3 in the Services PMI, which is well below the 29 forecast and the previous month's reading of 34.5.

The Manufacturing PMI came in at 32.9 which is again lower than consensus forecasts at 42 and below the previous month's reading of 47.8.

According to IHS Markit the collapse in economic activity was driven by widespread business shutdowns at home and abroad in response to the coronavirus disease 2019 (COVID-19) pandemic. The decline in the Composite PMI signalled by far the fastest decline in business activity since comparable figures were first compiled over two decades ago.