The much-awaited Retail Sales June 2020 report came out earlier today, showing a V-shape recovery in the UK.
The Office for National Statistics reported that retail sales in June increased by 13.9% when compared to the previous month, beating expectations of 8.3% by a mile. Moreover, the previous month’s data was revised higher, a further positive sign.
The V-shape recovery shows the level of retail sales back to pre-pandemic levels, in a sign that the United Kingdom’s economy is recovering from the slowdown, albeit gradually. Such developments are encouraging for the future path of the recovery, providing they are accompanied by growth in other economic areas.
Details of the June 2020 United Kingdom Retail Sales Report
Non-food store and fuel sales lead the growth in the June report, as they grew by 45.5% and 21.5%, respectively. Online spending remains elevated, at 31.8%, albeit declining when compared with the previous month.
The big question moving forward is what to make with such a report, and is the growth sustainable? A couple of issues are worth considering, before becoming too optimistic about the headlines of such a report.
First, the market expected a sharp rebound in retail sales. As the lockdown eased in the United Kingdom and people started to move again (as reflected by the mobility index), the increase in fuel sales should not take anyone by surprise.
Second, the indicator itself is not what it used to be before the pandemic. For instance, up to the coronavirus outbreak, the retail sales indicator’s evolution depends a lot on the services sector as well. While the services sector is still considered, it has a shrinking portion of the current data. In an economy dominated by services, this is a problem as the indicator does not reflect the true stance of the economy.
For these reasons, the retail sales indicator is not a proxy anymore for overall consumer spending, as there is a switch from consumer spending on services to goods.
The market’s reaction says it all – the GBP pairs barely moved on the news. In fact, they remained unchanged, little affected by the positive headline.
The EURGBP traded all week with a bullish tone as Euro was boosted by the EU Summit outcome. Another important pair, GBPCHF, is unable to climb back over 1.20 despite reported SNB intervention to weaken the CHF.