Bill Jamieson: Retail rally or late Easter blip?

Retail sales are a critical barometer of economic health. They are influenced by employment, average earnings, the state of household budgets, consumer confidence – and more often than not by the weather.

Mild March flattered figures but online sales saw the biggest boost. Picture: John Devlin
Mild March flattered figures but online sales saw the biggest boost. Picture: John Devlin

The latest reading of UK retail sales showed an unexpected jump in March – this in the face of Brexit chaos and the worst constitutional crisis at Westminster for decades. Is it a sign of confidence returning to the high streets? Or a one-off fillip due to milder weather?

This matters, because a recovery in consumer spending could herald a wider upturn in the economy overall as companies are encouraged to step up production and deliveries. And after a long period in which business investment and expansion has been severely impacted because of Brexit uncertainties, any sign of a turning point, however frail, could point to better economic fortunes ahead.

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The ONS figures revealed year-on-year growth in retail sales last month running to 6.7 per cent – the highest since October 2016. It said milder weather had helped to boost sales in comparison with the “Beast from the East” last year.

Monthly sales rose 1.1 per cent – economists had been expecting a fall – with the warm weather boosting clothing sales. Department stores were the only type of stores to report a fall in sales compared with the previous year, seeing a 0.3 per cent decline in March.

In contrast, food stores registered a 3.3 per cent annual rise, and textile, clothing and footwear stores saw a 7.1 per cent increase from a year earlier.

However, altogether less upbeat was the latest assessment from the Scottish Retail Consortium. The March figures, it points out, were negatively distorted by the timing of the run-up to Easter, falling in April this year instead of March in 2018.

So it looked instead at the two-year average. On this basis, total sales fell by 0.5 per cent in March, against an increase of 2.3 per cent in March 2018. This was below both the three-month and 12-month average increases of 0.6 per cent and 0.9 per cent respectively. The two-year average growth was 0.9 per year, a slowdown from February’s equivalent of 1.1 per cent.

Over the three months to March, in-store sales of non-food items fell 1.5 per cent on a total basis. The outstanding positive area was – once again – online, where the three month and 12-month average growths were 4.5 per cent and 6.4 per cent respectively.

Helen Dickinson, British Retail Consortium chief executive, said: “Retail sales slowed in March, even when the Easter distortions were accounted for, as greater uncertainty caused people to hold off from splashing out. Shoppers were generally cautious not to overspend, particularly on larger items. Brexit continues to feed the uncertainty among consumers.”

Consumers are still cautious and retailers are facing a continuing uphill struggle against business rates, town centre car parking charges and ever-rising regulatory burdens. However, the continuing rise in numbers employed, subdued consumer price inflation – and warm Easter weather – gives some hope for improvement as we move into the summer.

On the bigger picture, concern continues to dog prospects for a global upturn. A slowdown in manufacturing in America and Europe now threatens to engulf services, underlying fears of a broader slowdown.

Last week brought news that the Eurozone’s composite Purchasing Managers Index (PMI) figure for April was 51.3, according to IHS Markit, down from 51.6 in March and only just above the 50 mark that separates expansion from contraction. And in the US, business activity grew at its slowest rate in nearly three years.

As if this was not enough, the International Monetary Fund and the OECD have warned that most advanced economies will see growth slow in the year ahead. Its forecast for world growth this year was downgraded to 3.3 per cent compared with 3.5 per cent in January, but the pace was still expected to pick up to 3.6 per cent in 2020. Recovery, it said, was “precarious” and risks remained “tilted to the downside”.

US growth was expected to be 2.3 per cent for 2019 (2.5 per cent in January), slowing to 1.9 per cent in 2020, reflecting the fading effects of President Donald Trump’s fiscal boost.

Growth in the Eurozone was expected to be a disappointing 1.3 per cent this year with (1.6 per cent in January), before picking up to 1.5 per cent in 2020, with especially sharp downward revisions to the growth projections this year for Germany (down to 0.8 per cent from 1.3 per cent in January). As for the UK, the IMF has downgraded its 2019 growth forecast to 1.2 per cent (1.5 per cent in January and October).

So, overall, world growth is set to remain modest but with a gradual recovery emerging next year – slowdown, not recession, a soft pulse, but not a seizure.

Red light on the railway

It is customary for trains to slow down if not stop when the track lights signal red. Not so the massive HS2 (high-speed rail) project which continues to smash through a growing array of red lights.

I am grateful to the West Midlands Economic Forum for the following: the original estimate of the cost was £30 billion for the entire project, subsequently revised up to £ 42.6bn. In 2016, in the period leading up to the time Phase 1 received Royal Assent, HS2 Limited estimated the total cost for phases 1, 2a and 2b at £56bn.

Now comes the latest independent estimate from mbpc Infrastructure Consultants of the cost of all three Phases – it stands at £106.35bn. This does not include local transport infrastructure connections to HS2 terminals, estimated at £43bn by Sir John Armitt, chair of the National Infrastructure Commission.

The independent estimate also does not include the cost of rolling stock, estimated at £2.5bn (18 units 
comprising yet to be designed power cars – two per train – and 18 carriages). The estimated capital power requirement costs of HS2 – approximately one-third of the output of Hinkley C – is currently estimated to cost £5bn.

Finally, the annual running costs are currently estimated as equivalent to the total running costs of the entire Network Rail network.

The more red lights, the faster, it seems, runs the crazy HS2 train.