‘Surprise to the upside’: Invesco’s Paul Jackson comments on UK retail sales data


  • “Despite the positive surprise, the financial market reaction was limited”
  • “We think this data represents further evidence of a return to normality”
  • “The pandemic may have changed shopping habits but not as much as suggested by recent data”
  • “The financial market reaction has been surprisingly muted”

Paul Jackson, Global Head of Asset Allocation Research at Invesco comments: “The UK’s Office for National Statistics today reported that retail sales volumes (including auto fuel) increased by a much larger than expected 5.4% in the month of March (Bloomberg Consensus forecast was +1.5%).  This follows a gain of 2.2% in February and represents a further rebound after the big lockdown impacted declines of 4.2% and 8.1% in November and January, respectively.  This leaves sales 7.2% above the year ago level (March 2020 saw the first big decline (-5.2%) of the pandemic).  Sales increased in all broad categories but particularly impressive was the March gain of 17.5% in textile, clothing & footwear, especially since non-essential retail outlets remained closed until April 12.  Despite the positive surprise, the financial market reaction was limited (see below).

“If auto fuel is excluded, sales volumes increased by 4.9% in the month of March (consensus 2.0%), after +2.5% in February, leaving sales 7.9% above the year ago level.  Non-auto fuel sales are now above where they were pre-pandemic (in January/February 2020), though are 4.5% below the peak volumes seen in October 2020.  In fact, sales during Q1 were 6.3% lower than in Q4, which is an indication of the contribution that retail sales will make to the quarterly GDP growth rate.

“We think this data represents further evidence of a return to normality as UK lockdown restrictions are eased, a process that we expect to have accelerated in April, as non-essential retail outlets were allowed to open (though we note that today’s GfK consumer confidence data implied a smaller than expected gain in sentiment to -15 in April from -16 in March).  The household savings ratio was 16.1% in December 2020, well above the 7.7% that existed a year earlier (and before the pandemic).  We believe the savings ratio will have increased in early 2021 and that a gradual decline in savings will allow a release of pent-up demand throughout 2021 and perhaps into 2022, suggesting more impressive growth in retail sales than we are accustomed to.

“Internet retail sales accounted for 32.8% of total sales in March, down from 34.6% in February and 36.4% in January (the latter was a record).  This remains, however, well above the pre-pandemic level of 19.1% recorded in February 2020.  Though we doubt that internet sales will fall back to the (rising) pre-pandemic share of sales, we do not expect them to maintain a share above 30%.  We suspect that something in the mid-20 percent range is likely over the rest of 2021.  The pandemic may have changed shopping habits but not as much as suggested by recent data.

The financial market reaction has been surprisingly muted with sterling barely changed and FTSE 100 futures declining by roughly 0.2% since the announcement (perhaps in the belief that it may encourage earlier action from the BOE).  Global stock markets seem to be negatively impacted by the worsening global pandemic data and are still absorbing yesterday’s news that President Biden is considering almost doubling the US capital gains tax rate to 43.4% (on those with incomes above $1 million).  Not only do we think this might provoke sales of US stocks in the short term to avoid the new higher rate, we suspect it may also discourage US share buyback programmes (which were encouraged by the fact that taxation on capital gains was lower than on dividend income).”


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