While retail sales growth in the UK remains surprisingly strong, growing by 3.1% over the year to the end of October, there are one or two worrying trends that have emerged in the recent data.

The most recent GfK consumer confidence data shows a continuation of the trend of the last two years, with consumers remaining marginally optimistic about the prospects for their own financial situation over the next 12 months, but very negative about the outlook for the UK economy over the same period.

While the various PMIs are pointing to the UK avoiding a second consecutive quarter of falling GDP growth, the latest labour markets numbers are hinting that consumer confidence might weaken over the next few months.

The latest employment data showed a slight fall quarter-on-quarter in the employment rate, but a rise year-on-year. However, the unemployment rate remains low at 3.8%.

There was also a decline in job vacancies, indicating that companies in the UK might be reining in growth plans in anticipation of a weaker than expected 2020.

Most importantly for the retail sector, the data on average earnings also showed a slight easing in earnings growth, and we suspect that the earnings growth may have now peaked for the short term.

None of these metrics are particularly worrying, given that employment is still not far off its record high, and the jobless rate is also close to a record low. Also, the low rate of inflation is supporting stronger real earnings growth. However, people’s spending and saving patterns are very susceptible to changes in sentiment, and as we have commented upon in the past, the biggest risk to the UK consumer economy is probably a rise in precautionary saving.

The UK savings ratio remains close to record lows, and this leaves households with a relatively thin cushion if they feel that there is a need to tighten belts. We believe that a hard Brexit would result in a sharp rise in consumer uncertainty, and a corresponding rise in the savings ratio (and hence a fall in spending).

The fact that a Brexit decision has now been delayed is probably good news for retailing in the short term, as it limits the risk of consumer shock in the final ‘golden quarter’. However, we are now entering the time of the year where it has become traditional for some retailers to make cautious noises about Christmas trading (which are then disproven in February trading statements). We expect trading once again to surprise on the up-side, but retail sales growth is likely to be slightly weaker in 2020 than 2019.

_{Read the articles within Spotlight: UK Retail Warehousing below.}