UK Consumer Spending is Bouncing Back, Bodes for a Better Second-Half of 2017 for the Economy

UK retail spending is recovering according to data from the CBI which suggests the UK economy might continue to see further expansion in the second half of 2017.

According to the latest monthly CBI Distributive Trades Survey, retail sales growth picked up in the year to July.

The rise in the headline reported retail sales balance from +12 in June to +22 in July took the index back slightly above its long-run average of +20 and was much higher than the consensus expectation of +10.

The pace of growth exceeds expectations for minimal growth and comes a day after official growth data shows the economy is in need of a consumer-led boost in the second-half of 2017.

The survey of 111 firms, of which 57 were retailers, showed that the volume of sales grew at a healthy pace – driven by grocery and clothing sales in particular - while orders placed on suppliers rose at a solid pace for a second consecutive month as the expectations balance jumped up from +3 to +20.

“Overall, sales for the time of year were considered to be slightly above seasonal norms,” report the CBI.

Looking ahead, retailers expect steady expansions in both sales and orders in the year to August, at paces similar to those seen this month.

This should support economic growth going forward, particularly if we consider the consumer to be the back-bone of the UK economy.

"July’s CBI Distributive Trades Survey suggests that retail spending started Q3 on a solid footing and should be able to maintain recent rates of growth," says Scott Bowman, UK Economist at Capital Economics. "The survey suggests that growth in high-street spending growth has maintained its recent pace. And sales volumes growth should begin to pick up once the temporary inflationary effects of the lower pound fade next year."

Growth in internet sales was little changed from last month in the year to July, and marginally below the long-run average.

Elsewhere in the distribution sector, wholesalers continued to report above-average growth in sales volumes, but motor traders reported the fastest drop in sales since November 2013.

"The warm summer has added a sizzle to our high streets as shoppers defied expectations, with sales growth in clothing shops and grocers driving overall performance," says Anna Leach, CBI Head of Economic Intelligence.

“But while retailers expect a similar pace of growth next month, the factors underpinning their sales growth are more shaky. Although employment is strong, real incomes are falling in the wake of higher inflation, and that’s expected to feed slower consumer spending growth ahead,” notes Leach.