UK retail sales growth fall to lowest in over four years

UK retail sales bounced back more than expected last month but showed the first annual decline in four and a half years, with the prognosis for the sector remaining grim amid the ongoing squeeze of household budgets.

UK retail sales volumes in October rose 0.3% month-on-month after a sharp fall the previous month that was revised up to 0.7% from 0.8%. The consensus forecast had been for a 0.1% rise at most.

Year on year, the Office for National Statistics revealed October's sales volumes were down 0.3%, against what was a strong month last year. This may have been less bad than the 0.4% drop the market expected but was down from the 1.3% rise this September and the lowest rate of growth since March 2013.

Excluding motor fuel sales, sales bounced back with a rise of 0.1% on the month, short of the 0.25 consensus and up from the 0.6% fall a month earlier. On last year, ex-fuel sales fell 0.3% versus a forecast 0.5% decline and after a 1.6% rise a month earlier.

Month-on-month growth in October was particularly strong in the second-hand goods sector, which includes auction houses and antique dealers, the ONS said.

Elevated inflation and weak pay growth are seen as a primary cause of the slow growth in retail, with real pay having been in continual decline since February.

Although the annual comparison suffered due to an especially strong October last year, when growth peaked at 7.4%, ec economist Chris Williamson at IHS Markit said the extent to which annual sales growth has slipped from boom to decline over the course of a year "underscores the plight faced by retailers and the degree to which households are being squeezed".

He added: "With inflation looking likely to have peaked either in October or November, the squeeze on household finances may start to ease in coming months, providing pay growth does not falter. Survey evidence from recruiters in fact suggests that a lack of candidates to fill vacant jobs is helping drive up starting salaries, which should help boost wider pay growth in coming months."

Ruth Gregory at Capital Economics agreed that the official figures supported timelier surveys in suggesting that spending on the high street has lost more momentum, with the 0.3% monthly rise only partly reversing September’s fall and left the annual rate at its lowest since March 2013.

"Admittedly, the sharp fall in the year-on-year growth rate was largely a reflection of the hefty 1.9% monthly rise in October 2016 and is likely to rebound in the coming months. More generally, with real incomes under pressure from subdued nominal wage growth and rising inflation, it isn’t surprising that spending growth has lost further momentum."