LONDON (Reuters) - Retail sales stalled in August, confounding expectations of a small rise as clothing sales exerted the biggest downward impact, official data showed on Thursday.
Analysts had predicted a 0.1 percent rise on the month and the Office for National Statistics said August’s unchanged reading took the annual rate of growth in retail sales volumes down to 2.1 percent from 2.9 percent in July.
In addition, July’s previously reported monthly gain of 0.4 percent was revised down to a rise of 0.2 percent.
“Given the resilience of the retail sector, August’s weaker outturn may just be a blip,” said Vicky Redwood of Capital Economics. “But even if that proves to be the case, we still think that a weakening labour market and looming fiscal consolidation will prompt sales growth to slow eventually.”
The pound fell nearly half a cent against the dollar, as the figures reinforced expectations the Bank will keep policy ultra-loose for some time to come.
The central bank last week held interest rates at a record low of 0.5 percent and said it would keep its 175 billion pound asset-purchase programme in place as it battles to pull Britain out of the worst recession in decades.
Despite the latest weak reading, sales in the three months to August rose 1.2 percent, the biggest increase since May 2008.
Bank policymaker Andrew Sentance said while some recent data had been more positive than might have been expected, there was concern about the strength of any recovery and the central bank will need to weigh up whether or not more stimulus is needed.
“In a few months time we’ll need to assess whether we need to increase that programme even further or whether we’ve gone far enough,” he said in a radio interview broadcast on Thursday.
The official measure of retail sales has been unusually resilient for much of this year, leading analysts to question its accuracy given weak survey data and retailers themselves complaining of lacklustre demand and being forced to cut prices aggressively.
British department store group John Lewis and Europe’s biggest do-it-yourself chain Kingfisher on Thursday predicted tough trading conditions ahead after reporting their first-half results.
John Lewis, seen as a barometer of British retail, posted a 20 percent fall in first-half profit and its chairman, Charlie Mayfield, said 2010 may be difficult, forecasting a “slow, drawn out economic recovery.”
Bank Governor Mervyn King had much the same message earlier this week. He said even if economic growth returned in the third quarter, many people would still feel the recession had not ended because it would take a long time for output to get back to where it was before the crisis struck.
GDP in the second quarter was 5.5 percent lower than a year ago while analysts polled by Reuters this week are predicting growth of only 1.1 percent right through 2010.
Still, the economy clearly appears past its worst. A survey by the Confederation of British Industry on Thursday showed factory order books fell slightly less than expected with firms more optimistic about future output.
“The end of the dramatic destocking that characterised the first half of the year has allowed manufacturing output to stabilise, but order books remain depressed and the outlook uncertain,” said Ian McCafferty, CBI chief economic adviser.
For a graphic click here: r.reuters.com/fuc37d
Additional reporting by Christina Fincher, Farah Master and Mark Potter; Editing by Andy Bruce