The UK consumer continues to both shop and buy

This morning has opened with a reminder that the UK is progressing towards electronic forms of payment. From the BBC.

Consumers spent more money on credit cards with UK retailers last year than they did in cash, a retailers’ trade body has said.

Debit cards were the most popular, but falling cash use pushed notes and coins down to third place, the British Retail Consortium (BRC) said.

Cash accounted for just over £1 in every £5 spent with UK shops.

The exact details of the numbers can be found here.

Credit and charge cards accounted for £82bn, or 22%, of retail sales last year – outstripping cash (£78bn) for the first time, according to the BRC, which has been running its payments survey for 20 years. Spending on debit cards totalled £216bn.

So the real story is the way that debit cards have come to dominate spending. In a sense they have become another form of cash and more convenient in that you do not have to go to a cash point and take money out before spending. I checked the research and they have grown from 49.6% of of transactions in 2013 to 56.8% in 2018. For foreign readers they ( and credit cards) are very convenient as you can “tap and go” in the UK for purchases up to £30. I do see people paying with cash but I see it less and less.

Returning to the growth argument the BBC seems to have omitted the bit which reminded us how strong UK retail sales have been.

Total UK retail sales rose by 4.1% to £381 billion, from £366 billion the previous year.

The BRC research was in essence driven by a whinge about this.

Retailers spent £1.3 billion just to accept payments from customers

I can see their point although inexplicably they seem to have omitted the costs of taking more cash in terms of security and the like.

Today’s Data

I had been thinking that we were due a weaker number based on reverse logic. You see these are erratic numbers and the outlook with the real wage growth we have is good, so a reverse ferret could be in play. At first it did look like that.

The monthly growth rate in the quantity bought in August 2019 fell by 0.2%; non-store retailing was the largest contributor to this fall, partially offsetting the strong growth reported last month for this sector.

However things are not quite how they seem because the July numbers which were originally reported as 108.8 have been revised higher to 109.3. So compared to where we thought we were August’s numbers were higher at 109. So good news on the index level gives a poor month on month number.

If we look deeper we see that overall growth has been continuing.

In the three months to August 2019, moderate growth in the quantity bought continues at 0.6% when compared with the previous three months, with growth in non-store retailing being the main contributor to the increase.

As it happens this fits well with the annual comparison.

The year-on-year growth rate shows that the quantity bought in August 2019 increased by 2.7%; this is a slowdown compared to the stronger growth experienced earlier in the year which peaked at 6.7% in March 2019.

We get a further perspective here as we note that growth has slowed from the March peak. Actually it had to slow from that sort of growth rate as even the UK consumers lust for spending is not infinite. Also March will have been boosted by some pre expected Brexit day stocking up.

Low Inflation

I have argued since the 29th of September 2015 that low inflation boosts retail sales via its impact on real wages. From today’s data that looks to be still in play because if you look at the difference between amount spent and volume you have a hint of the inflation rate.

In the three months to August 2019, the amount spent increased by 1.1% and the quantity bought increased by 0.6% when compared with the previous three months.

When compared with a year earlier, both the amount spent and quantity bought showed strong growth of 3.4% and 2.7% respectively in August 2019; this growth is a slowdown to the strength experienced earlier in the year.

Online Sales

There was an unusual development which I suspect is a fluke but will monitor.

Online sales as a proportion of all retailing fell to 19.7% in August 2019, from the 19.9% reported in July 2019.

That is especially curious as the BRC reported this for the same period.

Footfall declined by 1.3% in August, compared to the same point last year when it declined by 1.6%……..On a three-month basis, footfall decreased by 2.1%. The six and twelve–month average declines are 1.4% and 1.7% respectively.

As you can see they have consistently reported declines and in terms of the official data have been consistently wrong which up until this month can be explained by the decline of the high street and the rise of online shopping.

The CBI

I am not sure what they have been smoking to have reported this.

The CBI said that while retail sales volumes and orders both fell at their fastest since December 2008 in the year to August, sales were only slightly below average for the time of year, and to the least extent in four months.

As you can see that sentence seems to collapse under its own contradictions. Furthermore it was for a slightly earlier period that we have been looking at today and we know that was revised up. Anyway they expect the future to be dreadful and from where they think we are starting then it will be even worse than dreadful.

The CBI’s latest Distributive Trades Survey – which provides a gauge of retailers or the difference between those reporting rising and falling sales volumes – slumped to -49 in August from -16 in July.

Along with marking the biggest pace in a drop since the 2008 financial crisis, it was the second weakest reading since records began in 1983.

Comment

If we look back the story has been one of sustained growth because today’s release only takes us back to 2013 but if we go back 6 years to August 2013 we see an index level of 89 compared to this August’s 109. So we have seen growth of 22% in total. This has been quite a support for the UK economy but it does have a bit of a hangover because our trade figures so bear the brunt of this. Here they are for the three months to July.

Excluding unspecified goods (including non-monetary gold) the total trade deficit narrowed by £3.7 billion to £4.7 billion, exports fell £2.5 billion to £159.0 billion and imports fell £6.2 billion to £163.8 billion in the three months to July 2019.

They are an off set affected I think by the expected March Brexit date in addition to the usual problems. But the fundamental point is that we have run yet another deficit. For newer readers I feel that the situation is not as bad as it looks because we have so little detail on services trade but that is far from saying it would solve the problem.

However in conclusion the overall stream on UK data has been pretty good in the circumstances. Or as the Rolling Stones put it.

You can’t always get what you want
But if you try sometimes, well, you might find
You get what you need.

The Investing Channel

 

 

10 thoughts on “The UK consumer continues to both shop and buy

  1. Hello Shaun,

    A small thing about city center shopping . If they keep making the motorist the enemy then no one will drive there. Public transport is not going to help , park n ride ? pay twice ??

    So without all the grief and hassle I can get stuff delivered to my door – so why go to town to be ripped off?

    Forbin

    • Hi Forbin

      Yes I know. It is more than a decade ago I used to do some work for the small business division of Lloyds Bank and had some customers in Bermondsey. It was over £7 an hour which required having more than a few pound coins on your person. These days you can pay by phone but they of course charge more.

      “You pay 20p convenience charge on top of each parking fee. ”

      On the other side of the coin are deliveries as you say. In town these are pretty much when you want now. Even on a Sunday they will deliver past 9 pm.

  2. Hello Shaun,

    re: cash

    it’s not just the ease of use of debit cards (I use a credit card and cash ) but also the need to carry so much change . And that now our “notes” are horrible greasy plastic – yuk!

    Forbin

    • Interesting comments from BOE today after hold on rates and BREXIT uncertainty which suggests consumer spend may slow:

      “For most of the period following the EU referendum, the degree of slack in the UK economy has been falling and global growth has been relatively strong. Recently, however, entrenched Brexit uncertainties and slower global growth have led to the re-emergence of a margin of excess supply…..
      It is possible that political events could lead to a further period of entrenched uncertainty about the nature of, and the transition to, the United Kingdom’s eventual future trading relationship with the European Union.
      The longer those uncertainties persist, particularly in an environment of weaker global growth, the more likely it is that demand growth will remain below potential, increasing excess supply. In such an eventuality, domestically generated inflationary pressures would be reduced.”

      Also as inflationary pressure decreases my view it opens up for a bank rate cut.

      • Hi Peter

        The BBC led with this “Bank of England forecasts low interest rates for longer” and the Financial Times had something similar. But that is hardly news for us on here as we watch the US and the Euro area cut interest-rates. Norway did raise them but it is a rather specific situation.

        The one area that might normally get them thinking of a Bank Rate rise is the rate of wage growth. I think Forbin pointed out 2/3 years ago that he thought ~4% wage growth could be a trigger. But that would have been expected to come with much higher economic growth than we have.

  3. ‘For foreign readers they ( and credit cards) are very convenient as you can “tap and go” in the UK for purchases up to £30’ ; its pretty universal, or at least where I tend to go, and has been for a bit now. And apps on phones are used in ‘far away’ places, some way before the UK.

    • Debit cards have been hugely popular in NZ ever since their introduction in the 1990s, – even for very small amounts.
      The ‘tap & go’ limit is NZ$80 for credit and debit cards.
      (I understood “foreign readers” to mean visitors to the UK who may not know how eftpos works, but maybe Shaun meant readers in foreign places)

      • Hi Guys

        I did not mean to be patronising and knew some of the NZ situation as Eric has mentioned it before. I was trying to say that the £30 limit has proved useful and popular over here rather than nothing like it has happened elsewhere.

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