LONDON (Reuters) - Retail sales fell more than expected in February, reversing half of January’s rebound with volumes hit by the biggest jump in prices in 17 years which was only partly due to the rise in VAT, official data showed on Thursday.
The ONS said sales volumes including automotive fuel fell 0.8 percent last month after a downwardly revised increase of 1.5 percent in January. That was bigger than the 0.6 percent decline forecast by analysts and took sales up 1.3 percent on the year.
Moreover, prices including fuel leapt at their fastest monthly pace since 1994, up 2.5 percent. Excluding fuel, prices were 2.4 percent higher on the month — the biggest rise since the series began in 1988.
The figures come after data this week showed consumer price inflation accelerated to a 28-month high in February and highlight the dilemma faced by Bank of England policymakers who are trying to curb price pressures without damaging the recovery.
“Obviously, slightly higher-than-expected inflation data would have put an additional dent into the volumes ... so you’ve got a combination of weak cash spend and higher inflation,” said Ross Walker, economist at RBS.
“It’s flagging a downside risk for growth GDP.”
High inflation, muted wage growth and the uncertain economic outlook are expected to weigh heavily on consumer spending in the months ahead, dampening a recovery in the economy which has in the past been heavily reliant on consumer spending.
The ONS said last month’s fall in sales was broad-based, with only two sectors recording sales growth on the month: automotive fuel and non-store retailers.
The weak housing market is also having an impact on retail sales. The ONS figures showed sales at household goods stores fell 2.5 percent in February, the biggest drop in a year, and reversing January’s 2.5 percent rise.
It said January’s rise was due to customers rushing to beat the VAT hike to 20 percent which came into effect on January 4, but that sales of hardware, paint and glass, music and video equipment and electrical household goods had suffered due to flat house prices.
The rising cost of goods also seems to be putting off consumer. The implied deflator including fuel rose 3.9 percent on the year — its highest since September 2008 — after a rise of 2.7 percent in January. Food prices were up at their fastest pace in almost 2 years.
In monthly terms, prices at household goods, other stores and non-store retailers rose at a record pace.
The ONS said there were signs that high food prices were having an impact on volumes in that sector.
Supermarket chain Sainsbury’s said this week that sales so far this year had been slower than in the previous quarter and said the outlook for consumer spending was downbeat.
The ONS said that excluding fuel, retail sales fell 1 percent on the month and were up 1.2 percent on the year, versus forecasts for a fall of 0.6 percent on the month and a rise of 2.4 percent on the year.
Editing by Ruth Pitchford