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Weak retail sales and house price dip crimp recovery
June 7, 2011 / 10:26 AM / 7 years ago

Weak retail sales and house price dip crimp recovery

LONDON (Reuters) - Retail sales fell unexpectedly in May house prices lost ground in the spring, surveys showed on Tuesday, as low wage growth and worries about the economy led consumers to tighten their belts.

Shoppers are reflected in the window of an empty retail unit in Manchester, June 7, 2011. REUTERS/Phil Noble

The readouts added weight to concerns that the recovery is struggling to gain traction just as a far-reaching government austerity programme kicks in, and they should deter the Bank of England from raising interest rates from record lows any time soon.

The British Retail Consortium said the value of comparable sales fell by 2.1 percent in May compared with a year earlier, contrasting with economists’ average forecast for a 2.25 percent rise.

That followed a 5.2 percent jump in April driven by the timing of Easter and an extra public holiday for the royal wedding. Total sales, including sales in new floorspace, fell by 0.3 percent after a 6.9 percent rise in April.

A separate survey showed house prices fell last month at their sharpest annual rate in 1-1/2 years, in a further sign of weakness on the property market.

Prices rose less than expected in May by 0.1 percent, mortgage lender Halifax said. That left average prices in the three months to May down 4.2 percent compared with a year ago.

Economists said consumer spending was likely to remain weak this year as rising prices, muted wage growth and higher taxes erode household income, and public spending cuts and the subdued property market dent confidence.

“This is a very weak (retail) survey that fuels concern over the health of the UK consumer,” said IHS Global Insight economist Howard Archer. “This is particularly worrying given that consumer spending accounts for 65 percent of GDP.”

The Halifax report, coming after particularly sharp price drop in April, “reinforces our view that further weakness lies ahead in the face of ongoing muted housing activity.”


A woman waits at a bus stop with her shopping bags in Manchester, June 7, 2011. REUTERS/Phil Noble

Despite inflation running at more than double the Bank’s 2 percent target, the bank seems unlikely to raise interest rates in the coming months, Archer said.

Markets are not fully pricing in a 0.25 percent rate rise until next April and no change is expected at Thursday’s policy meeting.

In a Reuters poll earlier this month, some 70 percent of economists expected the first hike before the end of the year.

May’s gloomy survey gave a truer picture of the challenges facing retailers after two months where the timing of the Easter break and public holidays distorted results, the BRC said.

”Customers’ fundamental reluctance to spend is now clear to see,“ said BRC Director General Stephen Robertson. ”Households’ disposable incomes continue to be squeezed by uncomfortably high inflation and low wage growth.

“Uncertainty over the effects of government cuts is hitting consumers’ sentiment about future finances.”

That reluctance is also reflected in the property market, which has been slowing since the middle of last year. Mortgage approvals -- a leading indicator of house prices -- fell in April to just half their long-run average before the financial crisis of 90,000 per month.

Meanwhile, prominent retailers have warned their business outlook for the rest of the year is tough, despite the stronger sales seen over Easter.

Entertainment retailer HMV HMV.L, which has issued four profit warnings this year, secured its future on Tuesday with a 220 million pound refinancing deal.

Department store John Lewis said on Friday that weekly sales fell 0.8 percent, while home improvement chain Kingfisher KFL.L said it was cautious about the outlook.

The BRC survey showed declines in five of the seven broad retail categories in May. Footwear sales suffered their first year-on-year fall since August 2009. Food sales slowed markedly in May, although good weather boosted sales of barbecue and picnic supplies.

Editing by John Stonestreet

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