Retail sales volumes were up 1.4% year-on-year in July, marking the first annual gain since January. They were also 3.0% above February’s level.

Retail sales were also likely helped in July by the opening up of pubs, restaurants and hairdressers pushing up footfall. However, the opening up of the hospitality sector and other consumer service sectors may have diverted some consumer spending away from retail sales towards services. This certainly contributed to a falling back in food sales in July as people visited restaurants and pubs. 

Online sales remain significantly higher than they were before the pandemic, however, the opening up of the retail sector has led to a fall back in online sales’ share of total sales from the record high seen in May, with a  dip in volume in July. With July’s rise of 3.6% in retail sales volumes following double-digit month-on-month gains in both June (14.0%) and May (12.3%) after April’s record drop of 18.1%, sales volumes were up 6.1% in the three months to July. 

Consumer spending looks on course for a substantial rebound in the third quarter, after contracting a record 23.1% quarter-on-quarter in the second quarter.

The full opening up of the retail sector is unleashing pent-up demand, while the opening up of the hospitality sector and other consumer services from early July is further fuelling consumer spending. This supports the EY ITEM Club’s belief that the economy is likely to see GDP growth of at least 12% quarter-on-quarter in the third quarter and it could get up to around 15%. 

However, despite a likely rebound in consumer spending in the third quarter, which will contribute to the economy returning to significant growth, there is considerable uncertainty as to just how willing and able consumers will be to spend going forward.

Economic forecaster, the EY ITEM Club, suspects that the upside for consumer spending will be constrained after the third quarter by cautious consumers, higher unemployment and limited pay. On top of this, if there is any marked increase in coronavirus cases over the coming months, consumer caution could rise and weigh on shopper footfall.

On the positive side, low inflation should provide some support to spending. Four months of net repayment of unsecured consumer debt totalling £15.7 billion over March–June has improved many households’ balance sheets, which will help some consumers’ purchasing ability.

Howard Archer, chief economic advisor to the EY ITEM Club, said: “Consumer spending looks on course for a substantial rebound in the third quarter after contracting a record 23.1% quarter-on-quarter in the second quarter of this year. The full opening up of the retail sector is unleashing pent-up demand, while the opening up of the hospitality sector and other consumer services from early July is further fuelling consumer spending.

“Spending on meals also appears to be getting a significant lift in August from the Chancellor’s ‘Eat Out to Help Out’ scheme. This supports the EY ITEM Club’s belief that the economy is likely to see GDP growth of at least 12% quarter-on-quarter in the third quarter, if not significantly higher.

“However, there is considerable uncertainty as to just how willing and able consumers will be to spend beyond the third quarter. Indeed, persistent consumer caution is seen as a significant risk that could limit the UK recovery.”