Shock drop in October retail sales hits recovery hopes

LONDON Thu Nov 15, 2012 5:35pm GMT

Women walk past offers advertised in the windows of a supermarket near Manchester, northern England April 25, 2012. REUTERS/Phil Noble

Women walk past offers advertised in the windows of a supermarket near Manchester, northern England April 25, 2012.

Credit: Reuters/Phil Noble

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LONDON (Reuters) - Retail sales fell in October as shoppers bought less food and clothing, puncturing a consumer spending revival that policymakers hoped would kick-start the economy heading into 2013.

Sales volumes fell 0.8 percent on the month for an annual rise of just 0.6 percent, the Office for National Statistics said on Thursday. Both numbers were the weakest since April and much worse than forecast, and sent sterling lower against the dollar and the euro.

Food shops reported the biggest monthly decline in sales since November 2011.

"I think a contraction in GDP is on the cards for the fourth quarter," said Rob Wood, economist at Berenberg Bank.

Britons have suffered the biggest drop in disposable incomes for more than 30 years as soaring food and fuel prices and higher taxes have eaten away at pay packets that have risen little or not at all.

The government and central bank had vested high hopes for the economy on consumer spending, and retail sales had risen 0.5 percent month on month in September.

But a rise in inflation to a five-month high of 2.7 percent in October put that in doubt because wages are rising at a much slower pace.

"Retail sales had improved through 2012 as the fall in inflation eased the squeeze on households, but as inflation goes up that puts the brakes on retail sales for now," Berenberg Bank's Wood said.

THE BIG SQUEEZE

On Wednesday Bank of England Governor Mervyn King said the economy might shrink again in the final three months of the year, having exited recession in the third quarter.

The Bank has also signalled that the gap between price and wage rises is likely to persist, as it predicted that inflation would remain above its 2 percent target over the next 18 months.

On Thursday a report by grocer Asda, based on official data, showed that the amount of money households had left after paying taxes and buying basic goods rose last month, but much more slowly than in September.

Electrical retailer Comet fell into administration earlier this month, becoming the latest high-street victim of Britons' reluctance to spend.

The ONS said retail sales excluding fuel fell 0.7 percent on the month and were 1.1 percent higher than in October 2011.

Between August and October, total sales inched up 0.2 percent from the previous three-month period.

On a more positive note, a survey by business lobby CBI showed late last month that retailers expected a pick-up in sales in November.

And on Sunday the country's biggest department store group John Lewis said Christmas shopping had got off to a strong start.

In expenditure terms, retail sales account for roughly one fifth of UK GDP.

(Additional reporting by David Milliken; editing by Jeremy Gaunt and John Stonestreet)

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Comments (2)
farmerrobin wrote:
the only group of people unsurprised by this data wopuld be those livig outside the wealthier bits of London; various government mouthpieces trumpetting the end of recession a month ago were talking out of their bottoms, frankly.We’re robbed by banks, screwed by multinational power and oil companies and now, some of our biggest retailers [if not the biggest] are not paying any UK tax; some government we have!!!

Nov 15, 2012 2:07pm GMT  --  Report as abuse
Bellatrixa wrote:
“And on Sunday the country’s biggest department store group John Lewis said Christmas shopping had got off to a strong start.”

Of course; people who shop there are the only people in this country with money left. That’s not a “typical” high street store. It’s a step down from Harrods but a step up from Primark. Even then, middle class families aren’t easily able to afford their shopping at Waitrose/John Lewis. I’m glad there’s confirmation that the upper middle class are doing ok though. Would be frightful if they were hard up too.

Nov 15, 2012 9:41pm GMT  --  Report as abuse
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