Hypo Venture Capital Zurich Headlines: Surprise Boost To Retail Sales Unlikely To Hold

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By: Esther Armstrong

http://www.iii.co.uk/articles/15519/cautious-response-retail-sales-dents-pound

UK retail sales spiked in April after weaker data the month before, but experts warned it was likely a temporary boost due to a later Easter, warmer weather and the “royal wedding effect”.

Food and clothing sales led to a 1.1% jump in sales volumes, which represented a 2.8% increase year-on-year.
But experts said last month’s bounce on the high street was aided by what the Office for National Statistics (ONS) termed “unusual events” and would likely peter off next month.
Howard Archer, chief European and UK economist at IHS Global Insight, said: “While welcome, we strongly doubt that the 1.1% jump in retail sales volumes in April is a sign that the consumer is roaring back to life. Rather, what it suggests is that pressurised customers need a particularly favourable set of circumstances to part with their cash.”
He said this is demonstrated by the relatively muted increase of 0.2% in the three months to April compared to the three months to January.
But Vicky Redwood, ...
... senior UK economist at Capital Economics, pointed out the ONS figures do adjust for the Easter timing effects unlike the British Retail Consortium measure of sales, so the strength does not just reflect the later fall of the Christian festival.
She admitted the warmest April on record and the extra Bank Holiday will have made a difference, but added: “Not all sectors benefited from the warm weather. For example, sales in ‘other’ (including department stores) fell. Indeed overall non-food sales rose by only 0.4% month on month.
“What’s more, if the warm weather and Royal Wedding encouraged people to eat and drink at home, rather than go out, then the strength of retail sales in April may just have been offset by weaker spending on consumer services.”
Back in March, retail sales showed a 0.4% rise month-on-month and an increase of 0.9% year-on-year.
Sterling’s reaction
Like the experts, it seemed the markets too were sceptical of April’s figures. While the FTSE 100 regained earlier losses by Thursday lunchtime, the pound only marginally strengthened against the euro and dollar.
Richard Driver, currency analyst at CaxtonFX, said: “Sterling has made some gains in response, but not as much as you’d normally expect with such an impressive figure. Gains have been limited by a broader view that the UK economy is in pretty poor shape, and this is the key obstacle to a Bank of England rate rise this year.”
Nida Ali, economic adviser to the Ernst & Young ITEM Club, agreed: “The broader picture of a weak consumer outlook remains unchanged. High inflation is eroding real incomes and the labour market remains weak.”

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