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September retail sales rise but deflation ‘coming to an end’

Paloma Kubiak
Written By:
Paloma Kubiak

Retail sales in September are estimated to have increased by more than 4% compared with volumes last year, but weaker sterling is likely to bring an end to the deflationary trend witnessed in recent times.

In the five-week period from 28 August to 1 October, the retail sector is estimated to have increased by 4.1% compared with September 2015, representing the 41st consecutive period of year-on-year growth.

However, the data from the Office for National Statistics (ONS) showed there was no growth in September compared with the previous month of August 2016.

In terms of the amount spent, the value increased by 2.9% compared with September 2015 and was up 0.1% compared with August. In total, the amount spent in the retail industry was £36bn, compared with £28.7bn in the previous four-week reporting period.

The amount spent online increased by 22% compared with the previous year and by 22.8% compared with August 2016, showing the importance of retailers having an online presence.

In September 2016, all areas except textile, clothing and footwear, showed increases in the quantity bought and prices decreased by 1.1% compared with September 2015.

The ONS said this was the 27th consecutive month of year-on-year price falls.

But Laith Khalaf, senior analyst at Hargreaves Lansdown, said this was the smallest decrease since 2014, which shows the deflationary trend is abating, and possibly starting to turn.

Khalaf said: “Today’s retail sales show consumers are still willing to go out and spend their pennies, though looking forward the benevolent deflation we have seen of late is probably coming to an end for shoppers, thanks to weaker sterling.

In particular September’s rise in clothing prices is likely to be the start of a trend, as currency hedges and supply agreements come up for renewal.”

He said the clothing chain Next, for instance, buys about two thirds of its merchandise in dollars and so expects store prices to increase by 5% in the coming year.

“Competitive pressure will only partially protect consumers from price rises, which will act as a brake on consumer’s shopping habits, unless there is a substantial pick up in wage growth,” he added.