Clothing sales surge: what the economists say

http://www.theguardian.com/business/2015/may/21/clothing-sales-surge-what-the-economists-say

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Clothing sales enjoyed their strongest April rise in more than five years as shoppers splashed out on shorts and sandals amid the warm spring weather. Six economists give their take on the sales surge.

Martin Beck, senior economic advisor to the EY ITEM Club

Retail sales saw the fastest growth in five months. The strong April number is no flash in the pan, with retail sales growth continuing to run at an annual pace of just under 5%.

We had expected the total sales figure to rise strongly, given that the March data had been depressed by an unusually sharp decline in fuel sales, but there was a stronger than expected pickup across the non-fuel categories of spending as well. Clothing stores were the star performer, with sales rising by 5.2% month on month.

After a lengthy squeeze on household incomes, UK consumers are clearly enjoying the freedom afforded by falling prices on the high street and accelerating wage growth. We expect these factors to remain in place throughout the year, ensuring that consumer spending continues to offer strong support to GDP growth.

John Hawksworth, chief economist at PwC

Related: Sun shines on UK clothing industry with biggest April rise for five years

Consumers are continuing to drive the UK recovery, helped by stronger real income growth as inflation has fallen into negative territory.

The story for retailers, however, is of much more modest growth in the value of their sales, which actually declined by 0.5% in cash terms in the last three months as compared to the previous three months (or were flat excluding petrol). This reflects the impact of fierce competition from discounters and online sales and falling global commodity prices, which together have pushed average store prices down by more than 3% over the past year.

This will put pressure on the profit margins of retailers since flat or falling cash revenues contrast with a recent rise in wage inflation in the sector and continued increases in rents. Despite the strong headline volume growth figures, there are still tough times ahead on the high street.

David Kern, chief economist at the British Chambers of Commerce

Following a modest setback in March, retail sales have soared in April. These figures indicate that after the slow patch in the economy in the first three months, the pace of growth is likely to accelerate in the second quarter.

Although the spike in retail sales is good news and will strengthen confidence, we must remember that the UK’s economic growth remains unbalanced and is too reliant on consumer spending. Without such rebalancing the pace of activity may eventually stall.

Chris Williamson, chief economist at financial data provider Markit

A surge in retail sales in April suggests the consumer mood remains upbeat, contradicting worries about the UK falling into any kind of deflationary slump. With plenty of sunshine and falling prices, the high streets also saw people flocking to buy summer clothing.

The strong sales data adds to signs that the economy picked up speed again after a disappointing further quarter, but also add to the likelihood of interest rates rising later this year.

Related: UK retail sales: while politicians campaigned, the voters shopped

However, while we expect the sales trend to remain positive in coming months, it’s almost certain that the rate of growth will weaken from April’s surging pace. The spree in summer clothes buying in April means fewer shorts, sandals and other seasonal items will be bought in coming months. Furthermore, while households were upbeat about their current finances in May, they grew more concerned about their future finances, possibly reflecting the prospect of prices starting to rise later this year, which will also mean interest rates are more likely to rise. With retail sales numbers as strong as these seen in April, rate hikes later this year are certainly a growing possibility.”

Paul Hollingsworth, UK economist at Capital Economics

Clothing sales were particularly strong as consumers took advantage of the good weather to build their summer wardrobes. This means that clothing sales may weaken over the coming months.

Nonetheless, the rise in spending in April was broad-based, and the fundamental drivers of spending remain robust. Indeed, real wages are rising strongly, consumer confidence is high, credit is cheap and households are yet to spend all of their windfall from lower energy and food prices. With spending off the high street building pace as well, we expect overall consumer spending to rise by a robust 3% or so this year – the strongest growth since 2005.

Richard Lowe, head of retail and wholesale at Barclays

The high street has a lot to feel positive about. With the spectre of the general election banished, retailers are hopeful that consumers will make the most of recent falls in the cost of living, and spend. The longer-term outlook also remains bright. Retail sales, which hit £325bn last year, are expected to rise to £351bn within the next five years and £391bn by 2024.