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The Herald Scotland
23-05-2025
- Business
- The Herald Scotland
Retail sales figures major surprise as food stores in focus
The month-on-month rise in retail sales volumes in April was six times the 0.2% increase forecast by economists polled by Reuters. However, the ONS revised the month-on-month rise in retail sales volumes in March down from 0.4% to 0.1%. Food store sales volumes grew strongly in April, increasing by 3.9% month on month, with the ONS noting retailers had attributed this to 'the good weather' but also observing the rise saw this category 'mostly recovering from falls in February and March'. The ONS said of the April picture: 'Supermarkets, specialist food stores such as butchers and bakers, and alcohol and tobacco stores all grew during the month, with some retailers attributing this to the good weather.' Non-food store sales volumes fell by 0.7% month on month in April. The ONS said: 'This was because of falls in clothing stores and other non-food stores, such as sports and games retailers, and second-hand goods stores.' It noted these falls in sales volumes 'mainly followed strong growth in March'. The EY ITEM Club think tank said: 'April delivered a fourth successive rise in UK retail sales following a significant uptick in food sales. However, it's unclear as to whether underlying conditions are as strong as this data suggests, with sales likely to fall back in the coming months.' Read more Holiday companies and airlines revelations are eye-catching Major North Sea player issues warning on jobs Flights win 'game changer' for Scottish airport Ian McConnell: Privatisation surely not the answer for Scotland's ferries Ian McConnell: Why this big CalMac news is such a huge relief It added: 'The outlook for retail sales further ahead is dependent on the mood of consumers. Weaker real income growth, tighter fiscal policy, and the lagged effects of past interest-rate rises represent powerful headwinds to spending. But if consumer confidence remains resilient, there is scope for spending growth to align more closely with household income growth.' Matt Swannell, chief economic advisor to the EY ITEM Club, said: 'The retail sales data has been exceptionally strong in recent months, but it's unclear as to whether underlying conditions are quite as robust as the data suggests. "Furthermore, there was a puzzling inconsistency in official data for Q1, with both retail sales and output of non-retail consumer-facing sectors growing strongly despite a very soft outturn for consumer spending. The ONS's difficulty in adjusting for changes in seasonal spending patterns since the pandemic is probably part of the story.' He added: 'Looking ahead, we expect to see some payback for the string of recent upside surprises, with sales set to fall back in the coming months. Beyond that, the consumer outlook is mixed.' Nicholas Found, at consultancy Retail Economics, noted a 'glimmer of momentum' in the retail sales figures but flagged a 'more challenging reality'. He said: 'Retailers welcomed some much-needed sunshine, as shoppers returned to DIY and gardening, while lighter evenings and social gatherings lifted food and drink spending, which had seen sluggish growth in recent months. "Yet beneath the glimmer of momentum lies a more challenging reality. Value remains the overriding priority for consumers, with demand concentrated around carefully timed promotions and events, as high living costs and elevated interest rates continue to shape behaviour.' Mr Found added: 'At the same time, Budget and tariff-related costs are coming in, putting pressure on profitability. Retailers are navigating an increasingly complex environment, where protecting margins, sustaining investment and staying competitive is becoming harder. With economic uncertainty persisting and consumers still cautious, the resilience gap between those who can and cannot adapt will only widen.'
The Herald Scotland
21-05-2025
- Business
- The Herald Scotland
Interest rates in focus after surprise UK inflation surge
The rise in annual CPI inflation, from 2.6% in March, was fuelled partly by the hike in regulator Ofgem's price cap for household gas and electricity, which fed through to higher bills. There was also a surge in air fares, with the Office for National Statistics flagging the impact of the timing of Easter as it published the inflation data. And annual inflation in the food and non-alcoholic beverages category accelerated to 3.4% in April, from 3% in March, heaping further misery on hard-pressed households. Economists polled by Reuters had forecast annual CPI inflation for April would come in at 3.3%. The outturn of 3.5% is significantly above the target of 2% set for the Bank of England by the Treasury. The Bank of England's Monetary Policy Committee cut benchmark UK interest rates by a quarter-point earlier this month, to 4.25%. This was the fourth quarter-point cut since the MPC started reducing base rates last summer. The EY ITEM Club think-tank said: 'Consumer price index inflation surprised on the upside in April, largely due to the scale of rises for regulated and indexed prices and a temporary increase in air fares.' Mulling the outlook, it added: 'Headline inflation will likely edge up further over the coming months, before easing from the autumn as the contribution from the energy category fades.' Read more Weighing the prospects for interest rates, in light of the inflation data, the EY ITEM Club declared: 'Though the Monetary Policy Committee will likely be concerned that April's once-a-year rises in indexed and regulated prices were higher than anticipated, its measure of underlying inflation continued to cool. We don't expect today's data to deter the committee from maintaining its established 'cut-hold' tempo.' Matt Swannell, chief economic advisor to the EY ITEM Club, observed that 'as expected, the energy category added almost 0.7ppts (percentage points) to the headline rate' of inflation 'after Ofgem's price cap rose by 6.4% on April 1'. He added: 'However, the…once-a-year price rises for other indexed contracts and regulated prices were larger than expected. There was also an unusually high reading in the air fares category as April's price collection dates coincided with the Easter holidays, unlike in 2024.' Air fares rose by 27.5% month on month in April, the ONS data showed. And higher prices for overseas holidays over the Easter period played a part in the recreation and culture category exerting upward pressure on the annual CPI rate in April. Meanwhile, increases in vehicle excise duty (VED) also pushed annual inflation higher. Mr Swannell said: 'Today's data offers mixed messages for the MPC. On the one hand, April's readings for headline and services inflation overshot the committee's latest staff forecasts, and the larger rises for services prices that only change on an annual basis mean higher inflation is now baked into these categories for another year. 'But, on the other hand, the MPC's preferred measure of underlying services inflation continued to cool in April. On balance, we expect the MPC to continue cutting interest rates at every other meeting in the near term.' Bruna Skarica, chief UK economist at US investment bank Morgan Stanley, said: 'Inflation beat consensus as VED and package holidays pushed services inflation above even our higher-than-consensus forecast. 'Goods were weaker than we had expected and, all netted out, headline and core inflation came in line with our forecasts, and just 10bp (basis points) above the BoE's (Bank of England's) estimates. In addition, its measure of underlying services inflation went down, by 20bp. This really was a much better print than it looks at first.' She said of interest rates: 'We look for the next cut in August.' Ms Skarica added that Morgan Stanley then sees "sequential cuts to 3.25% by year-end".
Yahoo
29-04-2025
- Business
- Yahoo
EY: Two years of slow UK growth means ‘increased chances' of tax rises
Rachel Reeves may have to resort to reversing Labour manifesto tax pledges as UK growth fails to exceed one per cent for two years running, EY ITEM Club have said, in the latest blow to the chancellor's fiscal plans The Chancellor has been warned by several forecasters that President Trump's tariffs will hammer the UK economy this year. But leading consultancy EY has now suggested that low growth will seep into 2026, putting Reeves in a more difficult position ahead of this summer's spending review and autumn's budget. She has reaffirmed Labour manifesto commitments stating income taxes, employee national insurance contributions, or VAT would not be raised while the top rate of corporation tax rates would not be capped at 25 per cent. But EY ITEM Club's chief economic advisor Matt Swannell has suggested that an ongoing global trade war will result in a 'larger fiscal policy rethink'. 'The government's fiscal headroom appeared narrow even before the shift in US trade policy, so this added uncertainty and detrimental effect on UK growth, has added further pressure,' Swannell said. 'We still think the government will just about meet its fiscal rules, but some headroom will need to be built back even before it thinks about additional spending in areas such as defence.' 'Previous pledges to avoid increases in income tax, employee national insurance contributions, VAT and corporate tax rates will limit the options to raise additional revenue, as these taxes make up more than half of the tax base,' he added. UK exporters hope that the government can secure a trade deal with the US to avoid existing tariffs on vehicles and steel, as well as impending ten per cent tariffs on goods in less than three months. But cabinet minister Pat McFadden raised concerns among businesses on Sunday morning when he told Sky News that a trade deal may not take place. 'I think an agreement is possible. I don't think it's certain. I think it's possible. Far better to have the right agreement than to rush,' he said. His comments came after Reeves met with US treasury secretary Scott Bessent as talks continue. The UK is facing some difficulty in maintaining its balancing act between securing an agreement with the US while developing trade ties with the EU. Ahead of her meeting on Friday, Reeves said economic relations with the European Union were 'arguably even more important' given the UK's larger trade levels with the bloc. EY has suggested that European firms may export more goods to Britain as a result of Trump's tariffs as firms look for 'alternative markets to the US'. This would have the effect of weighing down on price growth in the UK. 'The inflationary effect of tariffs on the UK is less certain but, on balance, we expect it to weigh on inflation,' Swannell said. 'Falls in energy prices should, if sustained, translate into lower costs for consumers, while UK importers may also benefit from lower prices as Chinese and European exporters look to access alternative markets to the US.' Swannell also warned that inflationary effects should not be ruled out. 'But the pandemic demonstrated that disruption to the cross-border flow of goods can have a powerful effect on inflation and it's possible that the impact of tariffs may ripple through international supply chains and put upwards pressure on UK goods prices,' he said. Such a scenario would compound existing pressures on prices brought by Reeves' tax rises in last year's Autumn Budget.
Yahoo
28-04-2025
- Business
- Yahoo
UK growth could be 'postponed' for two years, report warns
UK economic growth could be "postponed" for two years amid a toxic cocktail of headwinds for confidence, according to a respected forecast which says further interest rate cuts may help lift the mood. EY ITEM Club, which uses the Treasury's economic modelling, downgraded expectations for output in both 2025 and 2026 in its latest report. It warns of a direct hit from Donald Trump's trade war and from persistent high inflation in the UK economy. But the forecast says the biggest impact would come from weaker sentiment among both households and businesses, given the surge in uncertainty and hits to global growth caused by the imposition of tariffs. Money latest: A "baseline" 10% tariff on imports from most countries around the world is in place while UK-produced steel, aluminium and cars are subject to duties of 25%. Around 16% of all goods shipped abroad head for the United States typically but the study said that weaker demand for exports would likely hit that number. It forecast UK growth of 0.8% this year - down from the 1% it expected three months ago - and a figure of 0.9% for 2026. That last figure represented a downgrade of 0.6 percentage points. These are not the numbers the Treasury will want to see, coming in even lower than the International Monetary Fund's downgrades last week, as it leads work on the government's stated priority of securing economic growth. It has been accused of an own goal through the chancellor's tax increases on business, which came into effect at the beginning of this month. At the same time, households are grappling a surge in bills, including those for energy, water and council tax, which are threatening to depress spending power further. Data on Friday showed a renewed slump in consumer confidence and sharp increases in the number of firms in "critical" financial distress and going to the wall. EY said the weaker global economic backdrop and spiralling levels of uncertainty would weigh on both families and businesses. It warned the consumer mood remained "cautious" amid the continuing pressures on household budgets, further limiting demand for major purchases. Anna Anthony, regional managing partner for EY UK & Ireland, said: "There had been signs that the economy was exceeding expectations in the opening months of 2025, but a combination of global trade disruption, uncertainty, and persistent inflation look likely to postpone the UK's return to more moderate levels of growth. "Businesses thrive on certainty, so it's unsurprising that an unpredictable global market is translating into lower levels of business investment over the short term. "While conditions remain challenging, there are still some grounds for optimism. "The services-led UK economy is projected to see continued growth this year and gradual interest rate cuts should slowly bolster business and household spending. "Over time, the unpredictable global landscape may offer opportunities for the UK to position itself as a stable, attractive destination for investment."
Sky News
28-04-2025
- Business
- Sky News
UK growth could be 'postponed' for two years, report warns
UK economic growth could be "postponed" for two years amid a toxic cocktail of headwinds for confidence, according to a respected forecast which says further interest rate cuts may help lift the mood. EY ITEM Club, which uses the Treasury's economic modelling, downgraded expectations for output in both 2025 and 2026 in its latest report. It warns of a direct hit from Donald Trump 's trade war and from persistent high inflation in the UK economy. But the forecast says the biggest impact would come from weaker sentiment among both households and businesses, given the surge in uncertainty and hits to global growth caused by the imposition of tariffs. A "baseline" 10% tariff on imports from most countries around the world is in place while UK-produced steel, aluminium and cars are subject to duties of 25%. Around 16% of all goods shipped abroad head for the United States typically but the study said that weaker demand for exports would likely hit that number. It forecast UK growth of 0.8% this year - down from the 1% it expected three months ago - and a figure of 0.9% for 2026. That last figure represented a downgrade of 0.6 percentage points. These are not the numbers the Treasury will want to see, coming in even lower than the International Monetary Fund's downgrades last week, as it leads work on the government's stated priority of securing economic growth. 1:10 It has been accused of an own goal through the chancellor's tax increases on business, which came into effect at the beginning of this month. At the same time, households are grappling a surge in bills, including those for energy, water and council tax, which are threatening to depress spending power further. Data on Friday showed a renewed slump in consumer confidence and sharp increases in the number of firms in "critical" financial distress and going to the wall. 19:33 EY said the weaker global economic backdrop and spiralling levels of uncertainty would weigh on both families and businesses. It warned the consumer mood remained "cautious" amid the continuing pressures on household budgets, further limiting demand for major purchases. Anna Anthony, regional managing partner for EY UK & Ireland, said: "There had been signs that the economy was exceeding expectations in the opening months of 2025, but a combination of global trade disruption, uncertainty, and persistent inflation look likely to postpone the UK's return to more moderate levels of growth. "Businesses thrive on certainty, so it's unsurprising that an unpredictable global market is translating into lower levels of business investment over the short term. "While conditions remain challenging, there are still some grounds for optimism. "The services-led UK economy is projected to see continued growth this year and gradual interest rate cuts should slowly bolster business and household spending.
