Retail sales in January not quite the 'hammer blow' feared

Jacqui Baker, partner and head of retail at RSM UK and chair of ICAEW’s Retail Advisory Group, comments on the January ONS retail sales data, which shows an increase in retail sales volumes of 0.5%:

‘January is typically already a painful month, and whilst it wasn’t quite the hammer blow that many feared, the figures will barely cheer up retailers after a difficult Christmas trading period. While food sales volumes fell 0.5%, non-food retailing and household goods increased 2.0% and 0.8% respectively.

‘Consumers have little choice but to be more selective with their spending. While consumers flocked to book holidays on ‘Sunshine Saturday’– the travel industry’s busiest day for bookings in January – this was at the expense of spend on clothing. With the rising cost-of-living set to continue and government support towards energy bills ending in April, it’s likely consumers will retrench even further as households’ disposal income continues to fall.

‘Whilst January provided some positivity, sales volumes have been on a downward trend, falling 0.9% over the last three months when compared to the previous three months. It will undoubtedly be a challenging few months for the sector. Resilient and agile retailers will come out of the other side, but there are inevitably going to be casualties as others will be forced to close their doors. There is, however, a light at the end of the tunnel for retailers, with the easing of inflation and energy costs towards the end of the year, but that may be too late for some.’

Thomas Pugh, economist at RSM UK, added: ‘The slight rebound in retail sales in January probably represents a better start to the year than many had expected. But the relatively mild weather in January will have helped. What’s more, consumers’ real incomes are likely to take a further hit over the next six months as inflation remains significantly higher than wages, more households are forced to remortgage at much higher rates and some government support is withdrawn. As such, we suspect retail sales will resume their downward trend in the first half of this year.

‘However, there is light at the end of the tunnel. The recession should be relatively short and mild and consumer spending should begin to pick back up in the second half of this year. So, retail sales should start to rebound later this year.’