MNI DATA IMPACT: UK Oct Sales Beat Forecasts, Borrowing Slows

UK retail sales rose sharply, defying economists' expectations of a small decline, while borrowing rose by less than feared, but the latest economic lockdown is likely to wreak havoc with both data sets in the fourth quarter, data released on Friday by the Office for National Statistics showed.

Retail sales jumped by 1.2% between September and October, defying forecasts of a 0.3% decline. Transactions jumped by 5.8% over October of 2019, the highest annual growth since March of 2019. Sales are now 6.7% above pre-pandemic levels in February. Early Christmas shopping ahead of the announcement of a second lockdown on 31 October accounted for the stronger-than-expected result.

Borrowing declined to GBP22.318 billion in October, the second-lowest outturn since the onset of the financial crisis, from a downwardly-revised GBP28.566 billion in September (originally reported at GBP36.101 billion). The October outturn fell well short of the OBR forecast of GBP28.7 billion.

Both data sets were collected before the imposition of the latest lockdown on 5 November, which is likely to dampen sales and lift borrowing at the start of the fourth quarter. The Office of Budget Responsibility will release updated borrowing and growth forecasts next week, following the Treasury's new spending plan.

Net debt declined to 100.8% of gross domestic product, largely due to the stronger-than-expected rebound in third quarter GDP, from 101.2% in September, the highest since the fiscal year ending in March of 1961. Downward revisions to previous month's borrowing reduced the September debt ratio from the 103.5% reported last month.

Year to date borrowing rose to GBP214.9 billion, compared to GBP56.1 billion in the entire 2019/2020 fiscal year and GBP157.7 billion over the 2009/10 fiscal year, during the depths of the financial crisis. While high by historical standards, the ONS has consistently revised monthly borrowing data downward in subsequent months.

Over the year to September, borrowing fell to GBP192.6 billion from the GBP208.5 billion reported last month, reflected a GBP5.7 billion increase in value-added-tax receipts and a GBP6.9 billion decrease in outlays under the Corona Virus Job Retention Scheme.

Internet sales rose by 4.7% between September and October, reversing three straight months of decline, taking online transactions up by an annual rate of 60.1%, the biggest increase since June. That took internet purchases to 28.1% of total sales by value last month, up from 26.1% in September (but below the record-high of 32.8% recorded in May).

All categories of retail have surpassed pre-pandemic levels, with the exception of clothing (down 13.8% since February) and fuel (down 8.8% since February).