Retail sales in Great Britain slump by 1.2%; government borrowing figure for June is lowest since 2019 – business live | Business

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The government’s borrowing was just over £3bn above the Office for Budget Responsibility’s (OBR) forecast across the first three months of the financial year, totalling nearly £50bn.

Receipts are running slightly behind expectations, while spending has been higher.

The EY Item Club forecasting group, which uses the Treasury’s model, thinks higher debt servicing costs means there’s a good chance this underperformance will persist for the rest of the year. Further ahead, the outlook for the public finances depends on how the new government approaches fiscal policy.

Peter Arnold, EY UK chief economist, said:

The public finances data tends to be prone to revision, so the picture for the start of fiscal year 2024-2025 could look different in a few months’ time. But as things stand, the EY Item Club thinks this underperformance is likely to persist. The OBR’s assumptions for gilt yields and Bank Rate look too low, and this suggests debt servicing costs will prove to be higher than they expect. This is likely to mitigate the reduction in borrowing caused by a significant tightening in fiscal policy.

Looking further ahead, the EY Item Club awaits the new chancellor’s first budget with interest. Maintaining the net debt rule will mean that, in the absence of forecast revisions from the OBR, the new government will face a similar need to consolidate to their predecessors. It looks likely that the freeze on most tax allowances will be maintained for at least the next three fiscal years. However, it may prove challenging to turn existing spending totals into department-by-department plans, both in terms of current and capital spending.

Lisa Hooker, PwC’s leader of industry for consumer markets, said shoppers were still reluctant to spend despite the fall in inflation to 2%, higher wage increases and lower social security contributions.

It appears that the cooler, wetter weather over spring and early summer, combined with longer term uncertainty in the period prior to the general election, has discouraged shoppers from both buying seasonal goods and making longer-term big ticket purchases.

Retail sales fell by 0.1% in the second quarter from the first, contributing little to GDGP growth.

Rob Wood, chief UK economist at Pantheon Macroeconomics, said this keeps his forecast for GDP growth in the second quarter at 0.6%, while the Bank of England has forecast 0.5%, “as consumer spending on services fares better while output is supported by business-to-business spending too”. He said:

As the weather took a turn for the worse in June so did consumers’ spending. Rainfall was 24% below average in June, compared to 19.7% above in May, but June was much cooler than May relative to the seasonal average. The temperature in June averaged 0.2 degrees below the norm, whereas May was the warmest since at least 1884. That probably explained the drop in sales in June.

Retail sales have been enormously volatile this year, as they are bounced around by the weather and measurement problems. That enormous volatility can disguise the underlying trend. Retail volumes were not booming in May and neither are they collapsing now. Year-over-year retail sales volumes growth is steadily, if unspectacularly, trending up as consumers’ real income growth improves, they have to replace items like televisions and clothes, and goods inflation slows relative to services.

Charlie Huggins, of the investment firm Wealth Club, said:

Retail sales volumes came in weaker than expected in June, following a stronger-than-expected May. This continues the volatility in monthly sales patterns seen since the turn of the year, with strange weather and economic caution playing a role.

Consumers weren’t exactly splashing the cash in June – sales in every category, excluding fuel, declined. But we should remember that May sales were especially strong. Sales volumes over the last 3 and 6 months are broadly flat and suggest the consumer is in reasonable health, but not exactly feeling flush.

The volatility in monthly retail sales is making it even more difficult than usual to read the economic tea leaves. June was not a great month for the sector. But inflation is moderating, wages are rising and the election is now done and dusted, providing much needed certainty. This means sales could easily bounce back over summer, especially if the weather Gods start being a little more kind.

Introduction: Retail sales in Great Britain slump by 1.2%; government borrowing figure for June is lowest since 2019