Sales surge dampens fear of UK recession

A surprise surge in online and high-street sales last month looks set to return the economy to growth, and in so doing help the UK dodge a recession this year.

Data released last week showed that the UK economy contracted in the second quarter for the first time since 2012 and “economists looked to the retail sales data for clues for the strength of the economy at the start of the third quarter” says the BBC.

Surprisingly, monthly retail figures from the Office for National Statistics showed sales rose 0.2% - defying forecasts for a 0.2% fall.

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

While the ONS data showed online sales recorded a 6.9% jump in the month - the biggest rise for three years – helped in part by Amazon Prime Day, the UK’s beleaguered high street retail sector also saw a growth in sales, with department stores recording their first increase this year.

Some economists have said the figures demonstrated that consumers were not fazed by the imminent Brexit deadline, while “others have said consumer spending also got a lift from the heatwave in July, and were sceptical that consumers would keep spending as much, as the 31 October Brexit deadline moved closer” reports The Guardian.

The answer, as usual, appears to be somewhere in between. “To be sure, there were a couple of special factors that explain why spending, after a bumper June, was again solid in July,” says Larry Elliott in The Guardian. “That said, though, there are also underlying reasons why spending is holding up” he adds, citing record employment and faster wage growth.

Whatever the reason, “shoppers spent so vigorously last month that the economy is set to return to growth, dodging recession despite the pressure from the US-China trade war and the risk of a ‘no deal’ Brexit”, says Tim Wallace in The Daily Telegraph.

While the surge in retail sales relied in part on heavy discounting and food sales slipped and household goods shops also struggled, “nonetheless the overall improvement in sales indicates the strong jobs market and rising incomes are giving the economy more support, boosting domestic demand even as exports struggle and businesses hold off investment in the face of intense political uncertainty”, he adds.

Looking to the autumn Gabriella Dickens, the assistant economist at Capital Economics, predicted household spending would hold up as long as a no-deal Brexit could be avoided.

“The outlook further ahead depends on what happens with Brexit. If there is a no-deal Brexit, consumer spending growth would probably fall,” she said.