Managing Director, London
Retail sales were slightly better than expected in April, despite wet weather and a continued decline in footfall. Retail sales grew in value terms, increasing by 3.4% compared to the same month last year. Meanwhile, volume growth of 1.5% is in line with numbers seen at the start of the year. On a subsector level, consumers are spending more on food, but less on apparel. The 1.3% growth in the quantity of food bought marked the first month of growth since April 2017.
Despite real wage growth and record levels of employment, consumer confidence remained subdued in April. Real wage growth increased by 0.4% in real terms compared with a year earlier and was the second consecutive month of growth. Inflation decreased to 2.4% for the month, getting closer to the government target of 2%. The employment rate between January and March was the highest since comparable records began in 1971. Despite these positive developments, the outlook for economic growth remains sluggish amid uncertainty over Brexit.
The rising costs and changing shopping habits that are putting pressure on high street retailers show no signs of abating. Following a string of retailers—including Mothercare and New Look—undergoing company voluntary arrangements (CVAs), property owners look set to take a tougher stance. There is considerable discontent among the landlord population following the launch of the House of Fraser CVA and a group of landlords are said to be considering a challenge. Revo, which represents retail property companies, has also written to the Commons’ Housing, Communities, and Local Government Select Committee warning about CVAs.
The unemployment rate stood at 4.2% in the three months to March, down from 4.6% in the same period a year earlier, and the joint lowest since 1975. The total number of unemployed people fell to 1.42 million, 46,000 fewer than the previous period. The employment rate between January and March was 75.6%, the highest since comparable records began in 1971.
Pressure on consumers continued to ease slightly during the period, with average weekly earnings for UK employees increasing by 0.4% in real terms compared with a year earlier. This is the second month in a row that wages have grown, but the ONS results also showed that UK productivity has fallen. As several commentators have highlighted, wage increases alone cannot deliver lasting impact to the economy—productivity also needs to increase.
Consumer credit reached £210.6 billion in April, the highest it has been since the 2008 financial crisis. This represents a £1.2 billion increase on the previous month.
The Bank of England decided against an interest rate rise in May, but the prospect of a further rise later this year grew following the release of the consumer credit data and increasing wages. Sir Dave Ramsden, a policymaker at the Bank of England, signalled his support for higher interest rates in response to growing wages in a speech earlier this month.
Poor weather at the start of April had a negative impact on visits to UK shops adding to the long-term downward trend in footfall stemming from changing consumer behaviour. The number of consumers visiting the high street fell by 1.7% compared to a year earlier.
The South West and Wales has been particularly affected by footfall declines, having experienced the sharpest decline out of all the UK regions for three consecutive months at an average rate of 10%. London, in contrast, has shown resilience to market trends, with a 19.3% increase in April compared to a year earlier.
Average house prices in the UK rose to £213,000 in April 2018, an increase of 0.2% on the previous month or 2.6% when compared with April 2017.
According to the Bank of England mortgage approvals fell again in April, a continuation of the fall seen in the first three months of 2018. The overall number of mortgage approvals fell 1.7% in April to 121,600, with house purchase loans down 0.5%. Commentators have suggested that an expected rise in the base rate could have put house buyers off so far this year.