The UK Office for National Statistics posted positive retail sales for July today, up 0.4% sequentially or +3.3% annually, after rising 1.3% in June M/M. While we didn’t expect this jump, we also can’t ignore the facts: though we see inflation getting ahead of growth for the island nation, the positive momentum in retail sales, though rear-view, suggests that the consumer’s willingness to spend is reflective of a positive outlook on the broader economy.
On the longer term, however, the big question is if this momentum can be sustained. As the chart below illustrates, the last six months show a very incomplete picture. While we remain bearish on the country’s overall fundamentals (see our previous posts on the UK for analysis), including a ballooning budget deficit that pushed up to 8 Billion Pounds (~$13 Billion) in July, this retail sales data point is an important callout, and one we will be monitoring closely to discern any trend shifts.
With the UK economy slowly coming off the bottom and the FTSE vying with the S&P500 for YTD performance at 7.2%, we’re still not bulls on the country’s growth prospects over the intermediate term, yet are cognizant that within the European space market performance has not been tied solely to fundamental drivers this year.