People walk in a shopping street in London. File/Agence France-Presse
British retail sales beat expectations in September to cap a record quarter of growth that took total sales volumes further above their pre-pandemic level, but rising COVID cases risk crimping demand going forward.
Retail sales volumes expanded by 1.5% in September alone and are 4.7% higher than a year earlier, the largest annual rise since April 2019 and above all forecasts in a Reuters poll of economists.
Strong household demand has been the mainstay of Britain’s recovery from the initial shock of the coronavirus lockdown, when output contracted by 20%, more than in any other major advanced economy.
Retail sales in September were 5.5% higher than before the pandemic started in February, though the recovery has been uneven.
In-store clothing sales are more than 10% below year-ago levels, leading to a spate of high-street retailers facing financial difficulties, while general online spending is more than a third higher.
Britain’s economy is set to record a rapid rebound for the third quarter, and Friday’s retail sales data showed a record 17.4% increase in sales volumes for the period.
However, rising coronavirus restrictions are hurting consumer morale and weighing on the broader economy.
Wales is banning the sale of all non-essential goods in stores from 6 p.m. on Friday as part of a two-week lockdown there, and in much of the rest of Britain people can no longer socialise with people outside their own household.
“While retail is unlikely to be as badly affected as other sectors by the COVID-19 resurgence, the deteriorating outlook is nevertheless another reason to think the post-lockdown recovery in UK economic activity has reached its limit,” ING economist James Smith said.
This month Edinburgh Woollen Mill, which also owns the Peacocks and Jaeger chains, has come to the brink of entering administration, putting 24,000 jobs at risk.
British consumer sentiment fell this month by the most since a slump at the start of the coronavirus pandemic, according to a long-running survey also published on Friday.
Past weakness in consumer sentiment has not always translated into lower retail sales, especially as lockdown restrictions limit Britons’ other spending options.
Bank of England chief economist Andy Haldane also noted that a second wave of COVID cases in the United States over the summer had not depressed retail spending, which he thought could also prove the case in Britain.
But other economists have warned that reduced government furlough support from next month and the prospect of a sharp rise in unemployment will dent household spending power.
BoE Governor Andrew Bailey has said overall economic output at the end of the third quarter was probably about 9% below pre-pandemic levels. Most economists polled by Reuters expect the BoE to announce another 100 billion pounds ($131 billion) of asset purchases on Nov. 5 after its next meeting.
Meanwhile, British Finance Minister Rishi Sunak was forced to offer more financial help on Thursday to businesses grappling with a resurgence of the COVID-19 pandemic, which looks increasingly likely to derail the economic recovery.
Sunak told parliament that the government would shoulder more of the burden for paying employees’ wages for businesses that are still open but experiencing difficulties, and offer more money to hospitality companies.
The move - Sunak’s third major announcement in the space of a month - marks a further turnaround after he resisted calls to expand the generosity of government support schemes.
Opponents have said it was obvious that more help would be needed and that it should have come sooner.
Britain - the worst-hit European nation during the COVID-19 pandemic with more than 44,000 related deaths - is now seeing a second wave of the virus, recording 26,688 new cases and 191 deaths on Wednesday.
“I’ve always said that we must be ready to adapt our financial support as the situation evolves, and that is what we are doing today. These changes mean that our support will reach many more people and protect many more jobs,” Sunak said.
He told lawmakers the economy was under “enormous strain” and that more jobs would still be lost.
Sunak did not give the cost of the new measures. Government borrowing in the first half of the financial year is already more than six times higher than before the COVID pandemic.