UK Retail Sales Growth Picks Up in June says CBI Survey, Fuelling Hopes of a Second-quarter Economic Rebound

-UK retail sales grow at a 2018 best this June, says CBI survey. 

-Follows April and May ONS data showing rebound on high street.

-Feeds expectations of a second-quarter recovery for UK economy.

© moofushi, Adobe Stock

UK retail sales growth rose to its fastest level in 2018 during June, according to Confederation of British Industry (CBI) data, suggesting the UK economy may be regaining some of the momentum lost in the first-quarter.

Almost half of retailers polled by the CBI for its latest Distributive Trades Survey said sales volumes were up during the year to June, while only 105 said they were down, leaving a net 32% of firms reporting an improvement in trade. This is better than the net balance of 10% that economists had forecast.

Some 32% of retailers also said they expect sales to grow during the year ahead, with just 14% predicting they will fall, leaving a net 18% with an optimistic take on the future. Nearly half of whosesalers and motor traders also said their sales had risen in the year to June.

The CBI polled 106 firms, 45 of them retailers, which account for a third of overall employment in the UK retail industry in order to produce the June Distributive Trades survey. The survey was carried out between May 29 and June 12. 

“Higher-than-average temperatures seem to have had a positive impact on shoppers, with retailers benefitting from above-average seasonal sales and improved order volumes growth," says Anna Leach, head of economic intelligence at the CBI. 

Markets care about the retail data because it is a leading indicator of economic growth and because of the influence that rising or falling consumption can have on inflation. It is inflation that central banks are attempting to contain when they raise interest rates, and rates themselves are the raison d'être for most moves in currency exchange rates. 

Wednesday's CBI survey suggests the strong momentum seen on UK high streets in the last two months continued up until to the end of the second-quarter. It comes two weeks after Office for National Statistics data showed UK retail sales rising apace for a second consecutive month in May.  

UK retail sales rose 1.3% in May which, although down from an upwardly-revised 1.8% in April, was substantially ahead of market expectations.

The May and April data drew a line under poor retail figures for February and March that were impacted by a range of factors including a period bad whether at the junction between the two months, which made a significant contribution to the sharp slowdown in UK GDP growth for the first-quarter. 

UK GDP grew by just 0.1% during the first-three months of the year, down from 0.4% at the end of 2017, leading some observers to conclude the economy would slow again in 2018. Growth fell by 10 basis points to 1.7% in 2017. 

Whether or not the economy recovers its lost momentum during the second-quarter and subsequent months is key to the outlook for UK interest rates and Pound Sterling. 

The Pound is down 2% againts the Dollar in 2018 and up just 0.9% against the Euro. It had performed strongly between February and April as the consumer price index remained close to 3% and the Bank of England warned it would raise interest rates faster and further than markets gave it credit for if the inflation picture evolved in line with its forecasts.

The BoE predicted back then that inflation would remain above the 2% target until at least the end of the first quarter 2021. However, the consumer price index fell from 3% in February to 2.4% in April and held at this reduced level for May. Many economists also expect it to fall further during the quarters ahead.

This and a first-quarter economic slowdown led the BoE to abandon the idea of a May interest rate rise, leaving markets looking to the August meeting for the next possible rate hike.

The overnight index swap implied interest rate for August 02 was just 0.59% Thursday, suggesting around a 40% probability the BoE raises rates at that meeting. However, further signs of a recovery in consumer spending and the broader economy this July could revive markets hopes of a rate hike in August and lift Pound Sterling.

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