October 20, 2011 / 8:32 AM / 8 years ago

Surprise rise in retail sales seen as one-off

LONDON (Reuters) - Sales of laptops and video games gave a surprise lift to retail sales in September, supporting hopes that the economy posted at least some growth in the third quarter, without changing an overall dire outlook.

Shoppers crowd the walkways on opening day of the Westfield Stratford City shopping centre in east London September 13, 2011.REUTERS/Suzanne Plunkett

The Bank of England has warned of a tough winter ahead, predicting that growth will be close to zero in the last three months of the year, and launched a fresh round of asset purchases to help the ailing economy.

The Office for National Statistics (ONS) said on Thursday sales volumes rose 0.6 percent on the month, but added that sales in August fell more than it had previously estimated. Compared to a year ago, sales volumes also grew by 0.6 percent.

Analysts, who had forecast flat sales on the month and an annual rise of 0.7 percent, voiced doubt over whether sales would remain strong.

“I think it’s unlikely to stay this robust, but the importance of these figures is what it tells us about Q3 GDP, and that is that it will probably be reasonably solid,” said Alan Clarke, economist at Scotia Capital.

Earlier, think-tank NIESR estimated that GDP grew by 0.5 percent in the three months to September.

However, such growth would be less than many economists had originally pencilled in for the period, as they expected a solid rebound from a weak second quarter which was hit by a number of special factors such as an extra holiday for the Royal Wedding.

And most economists see consumer spending, which accounts for about two-thirds of Britain’s gross domestic product (GDP), remaining a drag on growth.

“Given that spending on services appears to have been muted, it appears that consumer spending made only a modest contribution at best to GDP growth in the third quarter and could even have contracted,” said Howard Archer, economist at Global Insight.

Rising prices, muted wage growth and government austerity measures have forced shoppers to rein in purchases not only of non-essential goods but also of groceries, traditionally the most resilient area of spending.

Economists polled by Reuters last week said that Britain faced a one-in-three chance of entering recession in the next 12 months and at best it would have to contend with several quarters of feeble economic growth.

BACK TO SCHOOL

Excluding fuel, retail sales went up 0.7 percent on the month and were 0.4 percent higher on the year, above analysts’ expectations for the monthly rise.

Sales at such stores as those selling electrical goods, carpets, books and jewellery among others rose 2.3 percent on the month, the biggest increase since October 2010. The ONS said this was largely down to back-to-school sales of laptops and a number of big video game launches.

However, clothing sales fell 2.1 percent on the year, their biggest annual fall since April 2008.

While the economy has barely grown since September 2010 and unemployment is rising again, some sectors and companies are bucking the trend.

Britain’s Society of Motor Manufacturers and Traders SMMT.L said car production jumped 7.5 percent on the year in September and struck an upbeat tone for 2012.

“Major new investment by vehicle manufacturers is opening up opportunities for UK-based suppliers, helping to drive the economic recovery and private sector investment,” Paul Everitt, SMMT Chief Executive, said.

Even some retailers are weathering the overall weakness in consumer spending. No. 2 department store group Debenhams DEB.L plans to speed up store openings and modernisations after posting a 10 percent rise in annual profit.

But on Wednesday Britain’s top household goods seller, Home Retail HOME.L, which owns the Argos catalogue stores, reported a 70 percent slump in first-half profit, prompting its chief executive to call on the government to help consumers.

However, finance minister George Osborne has little room for extra-spending as he has pledged to erase the country’s budget deficit of nearly 10 percent over the next five years.

That leaves all hopes for more growth with the central bank, which launched a second round of quantitative easing aimed at boosting growth and keeping inflation from undershooting its 2 percent target in the medium term as global demand weakens.

Economists expect the retail sector to remain under pressure for the rest of this year, not least from high inflation. Inflation hit a three-year high in September at 5.2 percent, the second-highest annual rate in the European Union.

Like other policymakers, rate setter Ben Broadbent repeated the Bank’s message in an interview published on Thursday, saying inflation was set to fall back sharply in 2012.

Editing by Ron Askew

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