UK retail sales show surprise fall in October

LONDON Thu Nov 14, 2013 10:31am GMT

Shoppers cross Oxford Street in central London August 15, 2013. REUTERS/Toby Melville

Shoppers cross Oxford Street in central London August 15, 2013.

Credit: Reuters/Toby Melville

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LONDON (Reuters) - British retail sales unexpectedly fell in October, hit in part by mild weather that caused shoppers to put off buying winter clothes, official data showed on Thursday.

Retail sales volumes shrank 0.7 percent on the month to show 1.8 percent growth on the year, the Office for National Statistics said.

Economists had expected sales to be flat on the month and to be 3.1 percent higher on the year.

Sterling fell to a session low after the data while government bond prices briefly rose as investors factored the surprising weakness into their largely upbeat expectations for Britain's recovering economy.

The Bank of England raised its growth forecasts on Wednesday for the British economy but stressed it was in no rush to raise interest rates.

Philip Rush, an economist with Nomura, said some of the weakness in October's retail sales could be a response to a bounceback in September, but it was also a reminder of the headwinds still facing the British economy.

"I think that there's too much optimism around UK demand prospects at the moment and there needs to be a reassessment of relative UK growth prospects," he said.

Consumer spending has grown for much of 2013 despite inflation far outstripping wage growth. Data earlier this week showed inflation fell to 2.2 percent in October but earnings were up just 0.7 percent in the three months to September.

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Helping to boost spending has been a combination of rising house prices, record low mortgage rates and higher jobs growth.

The chief executive of one of Britain's supermarket chains Sainsbury's cautioned on Wednesday that any recovery in Britain's economy may need time to take effect, given the strain on household budgets from below-inflation wage rises.

Consumers also face higher energy costs after several utilities announced double-digit hikes in power tariffs.

The ONS said clothing sales fell 2.8 percent in October from the previous month, probably reflecting mild weather across Britain during the month.

Earlier on Thursday Arcadia, the Topshop-to-BHS British retail group, said the unseasonably clement weather had helped pushed down its underlying sales by 3.7 percent in the last 10 weeks.

The ONS said food sales volumes were down 0.1 percent while fuel sales fell 2.1 percent.

The automotive fuel sector saw its biggest annual fall in the price of goods sold since September 2009 as petrol prices weakened.

Britain's hot summer spurred heavy spending by shoppers in July before they tightened their purse-strings in August and then resumed spending in September.

The retail sector accounts for 5.7 percent of the British economy.

Last week, the British Retail Consortium, which represents mostly large retailers, said sales picked up a touch in October but that the better weather meant clothing sales were weak.

(Additional reporting by William James; Editing by Gareth Jones)

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