This morning has brought an example of something which is both remarkable and familiar. You might argue that you cannot use those two words together but 2020 is a year that continues to defy convention. What I am referring too is more good news for the UK economy from this sector.
In October 2020, retail sales volumes increased by 1.2% when compared with September; the sixth consecutive month of growth in the industry.
This means that the annual picture looks really rather rosy too.
In October, the year-on-year growth rate in the volume of retail sales saw a strong increase of 5.8%, with feedback from a range of businesses suggesting that consumers had started Christmas shopping earlier this year, further helped by early discounting from a range of stores.
In recent times the pattern has changed with for example Black Friday being in a week’s time and there is also Cyber Monday. Some Black Friday offers seem to have already started, if the advertising I see is any guide. So the structure underlying seasonal adjustment has been changing and maybe there has been another shift this year. Thus there may be a hangover from these numbers but we simply do not know how much it will be?
If we try to compare we the period pre the pandemic we see another strong recovery and then boom.
Looking at October’s total retail sales values (excluding fuel), which is a comparable measure to our online series, sales increased by 7.9% when compared with February; driven by a strong increase in sales online at 52.8% in comparison to reduced store sales at negative 3.3%.
From all the deliveries I see happening the online numbers are hardly a surprise, but with Lockdown 2.0 now adding to the problems I fear for quite a bit of the high street.
So we do have a V-shaped recovery for one part of our economy and I guess the orders for the economics text books are already on their way to the printers.
What this has done is out the switch to the online world on speed with food sales seeing a particular boom. That will be fed by the stories that Covid-19 is being spread by supermarket visits.
In October, we can see that online sales for all sectors increased when compared with February. Online food sales nearly doubled, with an increase of 99.2% in comparison with food store sales, which saw a fall of 2.1%. Overall, total food sales increased by 3.4% when compared with February.
Clothing stores, with an overall decline of 14.0% in value sales, increased their online sales by 17.1% but saw the biggest fall in store sales at negative 22.1%.
The area which has most struggled does not really have an option for online sales.
In October, fuel sales still remained 8.8% below February’s pre-lockdown level, while car road traffic reduced by an average 14.2%.
Looking at the overall picture it is also a case of Shaun 1 Bank of England 0 because my case that lower prices lead to growth has got another piece of evidence in its favour.
This was the sixth consecutive month of growth resulting in value and volume sales 5.2% and 6.7% higher respectively than in February 2020, before coronavirus (COVID-19) lockdown restrictions were applied in the UK.
With value growth or if you prefer expenditure in Pounds lower than volume growth there has been disinflation or price falls combined with volume growth. For newer readers I first made the point formally on here on the 29th of January 2015.
Looking ahead that boost may now fade as October gave a hint of a change of trend.
All measures in the total retail sales industry saw an increase in October 2020. The monthly growth rate for value sales was 1.4% and for volume sales 1.2%.
It may take a while to note anything like that as Lockdown 2.0 will affect the December and particularly the November numbers.
These too were numbers that the forecasters got wrong by quite a bit. So today was yet another failure as Retail Sales were supposed to flat line and borrowing be much higher.
Public sector net borrowing (excluding public sector banks, PSNB ex) is estimated to have been £22.3 billion in October 2020, £10.8 billion more than in October 2019, which is both the highest October borrowing and the sixth-highest borrowing in any month since monthly records began in 1993.
Of course, we are borrowing extraordinary amounts so this is relatively good news rather than being outright good. As you can see below a more than half of the rise is extra central government spending.
Central government bodies are estimated to have spent £71.3 billion on day-to-day activities (current expenditure) in October 2020, £6.4 billion more than in October 2019; this growth includes £1.3 billion in Coronavirus Job Retention Scheme (CJRS) and £0.3 billion in Self Employment Income Support Scheme (SEISS) payments.
Also revenues have fallen and some of that is deliberate with the VAT and Stamp Duty cuts.
Central government tax receipts are estimated to have been £39.7 billion in October 2020 (on a national accounts basis), £2.7 billion less than in October 2019, with falls in Value Added Tax (VAT), Business Rates and Pay As You Earn (PAYE) income tax.
You might think that the balancing amount was local councils especially after the blow up in Croydon, which for those unaware is below.
Cash-strapped Labour-run Croydon Council has imposed emergency spending restrictions with “immediate effect”, the BBC has learned.
The Section 114 notice bans all new expenditure at Croydon Council, with the exception of statutory services for protecting vulnerable people.
A document seen by the BBC said “Croydon’s financial pressures are not all related to the pandemic”.
It is under a government review amid claims of “irresponsible spending”.
Section 114 notices are issued when a council cannot achieve a balanced budget. ( BBC News)
However the main other recorded component was the Bank of England at £2.8 billion. This is really rather awkward as it has not actually borrowed anything at all! But a Monty Python style method records it as such and it is the first time I can recall an issue I have regularly flagged about the national debt so explicitly affecting the deficit as well.
So without further ado here is the misleading headline that much of the media has gone with today.
Public sector net debt (excluding public sector banks) rose by £276.3 billion in the first seven months of the financial year to reach £2,076.8 billion at the end of October 2020, £283.8 billion more than in October 2019.
This is misleading because it includes the activities of the Bank of England which are not debt. I am no great fan of the Term Funding Scheme but recording its £120 billion as all being debt is quite extraordinary and is a major factor leading to this.
If we were to remove the temporary debt impact of these schemes along with the other transactions relating to the normal operations of the BoE, public sector net debt excluding public sector banks (PSND ex) at the end of October 2020 would reduce by £232.9 billion (or 11.3 percentage points of GDP) to £1,843.9 billion (or 89.5% of GDP).
It makes quite a difference especially for fans of debt to GDP ratios as we go from 89.5% to “around 100.8% of gross domestic product” on this really rather odd road.
The continued growth of UK retail sales is good news as we see an area that has recovered strongly. This comes with two caveats. The first is that with out enthusiasm for imports it poses a danger for the trade figures. The second is that in a tear with so many changes I doubt any survey is completely reliable so we are more uncertain that usual.
Switching to the public finances and taking a deeper perspective we are posting some extraordinary numbers.
Public sector net borrowing (PSNB ex) in the first seven months of this financial year (April to October 2020) is estimated to have been £214.9 billion, £169.1 billion more than in the same period last year and the highest public sector borrowing in any April to October period since records began in 1993.
We seem set to keep spending more in some areas ( defence) but want to cut back in others ( public-sector pay) so all we can do at the moment is be grateful we can borrow so cheaply. Even the fifty-year Gilt yield is a mere 0.77% and as I have written before at these levels I would issue some one hundred year ones as the burdens are not going away anytime soon.
My theme that low inflation helps economies also gets support from the public finances.
Interest payments on the government’s outstanding debt were £2.0 billion in October 2020, £4.4 billion less than in October 2019. Changes in debt interest are largely a result of movements in the Retail Prices Index to which index-linked bonds are pegged.
The Bank of England never gets challenged as to why it keeps trying to raise our debt costs in this area. Also you see another reason why the establishment wants to neuter the Retail Prices Index ( RPI)