Is that it for UK Retail Sales?

Today sees the publication of one of the bedrocks of the recent UK economic improvement where lower inflation led to higher real wages which resulted in strong retail sales numbers. This has boosted Gross Domestic Product via consumption. If you go back to January 29th last year you will see that I pointed out this would be a beneficial impact on the UK economy of the oil price fall. However as I pointed out on Tuesday we are seeing the influence of that move start to wane a little and it makes us wonder about real wages and retail sales. This is reinforced by the fact that wage growth has not only not picked up it has moved between flatlining and fading.

Average weekly earnings for employees in Great Britain increased by 2.1% including bonuses.


The mostly clothes based retailer Next has weighed in on the subject already today.

The outlook for consumer spending does not look as benign as it was at this time last year. Although employment rates are at record highs, growth in real earnings (the difference between wage growth and inflation) slowed markedly from September last year. In addition, growth in output across services, manufacturing and construction all decelerated throughout the course of the year.

They also expect to do worse than the general trend.

we also believe that there may be a cyclical move away from spending on clothing back into areas that suffered the most during the credit crunch.

Indeed for a company which has been doing well the numbers are rather downbeat.

We now expect NEXT Brand full price sales growth for the full year to be between -1.0% to +4.0%, with a mid-point of +1.5%…….However at this stage we think it is best to prepare ourselves for what could be a difficult year.

Oh and did I say downbeat?

The year ahead may well be the toughest we have faced since 2008.

Some care is needed here as Next has done well and some of this will be specific to it and some to the clothing industry but of course that is a component of UK retail sales. The share price is down over 8% as I type this.

Why are so many central banks cutting interest-rates?

This week has seen several moves making I think 48 in total now for 2016. This morning has seen this which provides some insight as to what is happening in China. From Bloomberg.

The central bank lowered the benchmark discount rate by another 12.5 basis points to 1.5 percent, it said in a statement Thursday in Taipei.

It was also be remiss of me not to welcome a new member to the negative interest-rates club.

The Monetary Council of the Magyar Nemzeti Bank reduced the central bank base rate by 15 basis points to 1.20%, in effect from 23 March 2016.

This made the overnight rate some -0.05% in Hungary. Have you spotted the size of the moves ( 0.125% and 0.15%). I would make them wear a clown’s outfit if they wanted to announce such moves as who believes such a move has any material impact?

However the international scene remains troubled which has implications for us in the UK.

UK Retail Sales

Firstly the news continues to be good.

Year-on-year estimates of the quantity bought in the retail industry showed growth for the 34th consecutive month in February 2016, increasing by 3.8% compared with February 2015. The underlying pattern in the data, as suggested by the 3 month on 3 month movement in the quantity bought, showed growth for the 27th consecutive month, increasing by 0.8%.

We also see the same main driver.

Average store prices (including petrol stations) fell by 2.5% in February 2016 compared with February 2015, the 20th consecutive month of year-on-year price falls.

We are spending some 1.4% extra to get volume gains of 3.8%. Excellent! I would make all the “deflation nutters” have to write that on a blackboard in the manner of Bart in The Simpsons.

However we also are getting signs that the peak may well has passed us by.

The amount spent in the retail industry increased by 1.4% compared with February 2015 and decreased by 0.7% compared with January 2016……..Compared with January 2016, the quantity bought in the retail industry is estimated to have decreased by 0.4%.

Also we see what may have spooked Next.

In February 2016, the quantity bought in textile, clothing and footwear stores decreased by 2.4% compared with February 2015 and by 0.4% compared with January 2016.

For once the weather may genuinely be to blame but let’s not go there as it gets the blame far too often.

Imputed Rent

This is an important topic which gets little media time. It is required in the income version of the GDP numbers to make them balance with the expenditure and output ones. Believe it or believe it not but house owners are “imputed” to receive rent and this is added to GDP. In my opinion this causes a litany of problems and if you read my articles on the subject not the least of this is our lack of knowledge of UK rents inflation as the CPIH shambles uses the same data.

Yesterday saw another piece of odd behaviour in this area. From the Office for National Statistics.

The decrease in weight is being driven by three classes. The largest decrease, the Imputed Rentals class is unique to CPIH. The class has fallen by 13ppt from 178ppt to 165ppt.

So in the middle of a housing boom when they have only just told us that house prices are rising at an annual rate of 7.9% and we have estimates of rent increases of 3.3% which both far exceed inflation we see a reduction in weights! Eh?  I would like to add that the Imputed Rental series has seen substantial revisions in recent years.

You may enjoy this bit as you note above that the weight has fallen because the explanation tells us this.

Further improvements to the methodology for actual and imputed rentals in the National Accounts will be introduced in BB16. The changes will result in further upward revisions in the expenditure on imputed rents, which will in turn increase the OOH weight in CPIH

Up is the new down.

Oh and never believe anything until it is officially denied.

The revision to the OOH index will therefore directly affect the relevant household expenditure current price estimates in the National Accounts, but not the volume estimates.

So you have more inflation but it does not affect volume. Odd because the past changes  boosted it and GDP  was Yazz right about this series?

The only way is up baby

Good job we do not rely on the GDP numbers…….


The UK Retail Sales series has been a good news story for the UK economy and I do not expect that to end but we are entering a phase which will see some slip-sliding away. If we look at the runes the price of crude oil may well be dipping again as it falls below US $40 for Brent Crude today but a return to past lows would not be as cheap after we buy it with a depreciated UK Pound £ which is below US $1.41 as I type this. However we should be grateful for what we have seen as by contrast the media hype about economic recovery in Italy has seen this reality today. From Istat.

The average of the last three months compared to the previous three months decreased by 0.1%.The unadjusted index decreased by 0.8% with respect to January 2015.

If we move to the GDP numbers then we have the issue of what to do about Imputed Rent? There are theoretical issues but today let us stay with the simple practical one that we in the UK have enormous trouble in measuring it and this song seems appropriate.

With their up diddley up-up and their down diddley down-down.Up! down! Flying around!Looping the loop and defying the ground!

Let me finish by wishing you all Happy Easter and a good news story from Dave Grohl of the Foo Fighters who responded to a call for help with this letter to Cornwall Council.

I believe that it is crucial that children have a place to explore their creativity and establish a sense of self through song. The preservation of such is paramount to the future of art and music. Without them, where would we be?


If you want to know more about the UK current account and its problems in an audio format here is a piece I did for Share Radio.

Meanwhile if we move to the world of video here is me on TipTV discussing central banking policy.







21 thoughts on “Is that it for UK Retail Sales?

  1. If the top half of the UK wages bill increases by 4.2%, what does the bottom half of the wages bill get?
    Less than ZERO.
    If those in the top half can already afford all the consumption they want, what happens to overall consumption?
    How would that manifest itself?
    Why do you think DC was asking firms to give workers a pay rise not long ago?
    Do you honestly think that it’s concern for poorer workers which is the motivation behind a Toerag Govt’s ~8% in minimum wages?

    The Govt knows that the less-well-off have been bled white over the past few years, and it shows in consumptiom, in GDP and hence in the debt/GDP ratio.

    • ‘The Govt knows that the less-well-off have been bled white over the past few years, and it shows in consumptiom, in GDP and hence in the debt/GDP ratio.’

      Quite,although worth considering what constitutes a few?It’s been since 2007/8 imo.

      It’s worth pointing out that public sector workers are getting next to nothing in pay rises.

  2. Next seem to be pretty good at their predictions. If you track them over the past 5 years I bet they are better than the Bank of England and the ONS.
    You could almost run a trading strategy based on ignoring the official forecasts and going with what Next think will happen.

    • Any clothing retailer who is still going strong after 152 years ( Hepworth of Leeds plus a couple of rebrands along the way), must know what its doing. Perhaps someone should invite Wolfson to run for PM after Trump’s run in the US.

      • They nearly went bust in the 1990’s.

        They are well run though but how much of that growth has come at the expense of M&S and Bhs?

        • Good question. Is clothing retail a zero sum game?
          I think probably not, it is usually possible to buy more clothing than you actually need. Next have designs that people like and M&S have really struggled with this but I suppose Tesco, Asda and Sainsburys selling clothing has also increased the competition.

        • ‘Good question. Is clothing retail a zero sum game?’

          They’ve all benefited from rising household non mortgage debt.The problem longer term is demographic in that younger generations are poorer and have to buy houses on ever higher multiples of salary.

          I wouldn’t be putting Next shares in my nest egg.The deep out of the money puts were cheap as chips when the 20/50 weeks crossed over.Not so now.nearly 15% down now.

          This is not advice etc.

          Also if we do go back into a recession(something that has an air of inevitability to me) then Sainsbury and Tesco will pick up viz Next I reckon.Not that it will do anything to save Tesco from it’s debts.

  3. Shaun,thanks for pointing out the following.

    ‘We are spending some 1.4% extra to get volume gains of 3.8%. Excellent! I would make all the “deflation nutters” have to write that on a blackboard in the manner of Bart in The Simpsons.’

    Also thanks for continuing to discuss imputed rents because virtually noone else does.The point I would like to make is that in the 1960’s iirc imputed rents were some 2% of GDP whereas now they are circa 11%.So can we say that a chunk of real growth since the 1960’s is due to what might politely be termed an accounting fiction?

    Also,it does seem rather strange for economists to maintain Debt/GDP ratios when such a large chunk has such questionable validity.

    Onto my other point.I have long regarded Next as a poster boy for the post 2008 recovery.That they’re preparing for the worst says a lot.

    • Tbf, I think we have to look to the spread of home ownership for at least part of that rise, even with the tail-off.

      • Fair point RB.Can’t argue with that.

        It’s still an accounting fiction though as the money isn’t spent in the economy.

    • Hi Dutch

      I am determined to occupy the Imputed Rent space because the twisting and turning is getting ever more ridiculous. As was chanted just across the river from me at Rafa Benitez ( by the home fans).

      “You don’t know what you are doing. You don’t know what you’re doing”.

  4. Further improvements to the methodology for actual and imputed rentals in the National Accounts will be introduced in BB16. The changes will result in further upward revisions in the expenditure on imputed rents, which will in turn increase the OOH weight in CPIH

    These improvements will no doubt be achieved through the time-honoured practice of licking a finger, sticking it in the breeze, turning round twice and whistling Dixie, followed by the insertion of a figure altogether more agreeable and amenable to the Exchequer.


    • Hi Jim M

      Thanks for The Outlaw Josey Wales reference as it is one of my favourite films. As to Imputed Rents well the song from the Magnificent Men In Their Flying Machines is perfect for inflation measurement but do you note that it (miraculously) does not affect GDP!

      Ah so they know the real value of everything?

  5. Hello Shaun,

    “I believe that it is crucial that children have a place to explore their creativity and establish a sense of self through song. The preservation of such is paramount to the future of art and music. Without them, where would we be?”

    As I see my kids rip more music mp3 off the internet I guess the “where would we be?” question is just another grab for tax payers money !

    kids “creativity ” – copy an paste a bunch of stuff for Media Studies degrees

    Sense of self – meaning selfishness , more of the me,me,me generation for free

    the future of art and music – considering that , well how many Batman and Super man re-makes do we need? , soaps – same old 7 plots with re-hashed semi-literate actors art – a pile of brick in the Tate along with a collection or arstictically set out coat hangers ….

    I wont go on but I’m sure others have similar opinions – after all look at Carney ….. or Merve

    stunning examples of British Creativity and Genius !


    • Media and the Arts are one of the few things we have a positive balance of payments in and actually bring money back in the country. I am a huge fan of STEM subjects but young people who graduate with these skills face a shortage of jobs in the UK either through lack of us building anything, whole classes of jobs not being mentioned to graduates in university so they don’t even know they exist, or employers just hiring non UK staff as they cannot be bothered training grads when they can hire someone who has done a similar job already.
      Your chances of being employed in the creative industries in the UK are actually pretty high. We need both so don’t get me wrong but I would caution knocking media studies and related degrees. They a have a surprisingly high employment rate and they are difficult job to outsource for cultural and proximity reasons.

  6. Hi Shaun

    Although Next talk about a cyclical move from certain types of spending I do wonder if we are not now in the early stages of the demographic changes kicking in. These will pick up speed over the next few years and move spending away from the 20-30s demographic to the lower spending 60+. This is the issue with so many economic statistics where the numbers actually consist of the seasonal, cyclical and secular components and the weighting which each has.

    Very good slots on both TV and radio BTW.

    • Hi Bob J and thanks

      The issue of seasonal adjustment comes up more and more these days and is another feature of the credit crunch. It collapsed in Greece hit trouble in Spain and comes under fire mostly these days in the US. On that subject you may enjoy this from Sober Look.
      Chart: Without the fancy seasonal adjustments US factory orders trend looks terrible –

      I am not sure how to put charts in the comments as opposed to the posts but the words give a hint.

      So in the short term we have therrawbuzzins challenge based on the Leap Day but moving forwards yours is more fundamental.

  7. Hi Shaun, Thanks for all your hard work. You’ve done more than anyone to increase my understanding of the economic issues in these ‘curiouser and curiouser’ times.
    Enjoy the Easter break, Eric.

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