Today’s UK retail sales data gives markets the first piece of hard economic data that pertains to how the consumer reacted to the April 12th reopening. The data print didn’t disappoint, with retail sales climbing above expectations by 4.7 percentage points to 9.2% month-on-month in April, while sales excluding auto fuel climbed 9%.
The year-on-year data should be treated with extreme caution given the elevated base effects in play, but the ONS supplies data relative to February 2020 as a metric to gauge consumption relative to pre-pandemic levels. In that respect, the amount spent and the quantity bought in April was up 9.9% and 10.6%, highlighting the release of pent-up demand now the consumer was less restricted to spend. Consumption was highest in non-food stores after spending was largely concentrated in staples throughout lockdown periods, while the nature of consumption switched from online to in-store with the highstreet reopening.
The data largely confirms what the Bank of England CHAPS data (aggregate credit and debit card spending) has been eluding to over the last few weeks. That is, consumers had strongly increased spending on delayable goods, such as clothing and household goods, while spending in social and work-related areas are likely to catch up once supply constraints are lifted in May and June respectively.
Within the sub-sectors of non-food stores sales, volumes increased the most in textile, clothing and footwear stores (69.4% MoM), while department stores showed the least growth (4.7% MoM). However, textile, clothing and footwear stores still showed lower volume of sales relative to pre-pandemic levels, the only sub-index to do so, suggesting there may still be more to come from the consumer in subsequent months.
Retail sales confirm spending patterns visible in CHAPS data – discretionary spending on clothing and household goods drove the recovery in consumption in April
The market reaction was limited, with sterling rising 0.1% against the dollar to begin trading in the green on the day.
While the data was positive, it largely confirms what markets had already been pricing into the pound over the last few weeks, based upon the economy reopening and CHAPS data alluding to a firm reaction by the consumer. Looking ahead, retail sales need to continue printing at elevated levels to move the needle for the Bank of England, who currently assume a fairly conservative release of pent-up demand over the coming years. Any signs that the consumer is drawing down on savings quicker than policymakers are assuming, which will need to appear in other monetary data along with a trend of higher consumption data, would stoke expectations in money markets of earlier rate hikes by the BoE. For now, that isn’t the case, but the data places the UK’s economic rebound on a good footing.
Limited reaction in GBPUSD to today’s data as markets already priced in expectations of strong consumer reaction to the economy reopening.
Author: Simon Harvey, Senior FX Market Analyst
Simon’s Financial Times coverage: Retail sales beat expectations in April as ‘hordes’ of Britons flock to stores