Falling retail sales add to market gloom

POOR sales of clothing and footwear pushed retail sales lower last month - the first decline since March - suggesting that the brief post-election high street recovery has come to an end.

The 0.2 per cent fall disappointed the market. Alongside a fall in imports and exports in June and a steep slide in new construction orders in the three months to May, the fall in sales helped to trigger a sharp decline in share prices.

The FT-SE 100 Index closed 27.7 points down, at 2,387.9, only partly recouping an extensive 38.8-point loss at one stage yesterday. The pound also remained weak, falling 0.37 pfennigs to DM2.8360.

Gwyn Haache of James Capel said: 'Normally the reaction would have been muted but the market is in a tremendously bearish frame of mind.'

Bad weather in June was thought to have hit new summer lines in clothing and footwear but the volume of sales by most other categories of retailer was broadly flat.

However, in the latest three months, usually a more reliable guide to the trend, retail sales rose by 0.6 per cent. Sales by food retailers rose by 0.5 per cent and department store sales increased by 1 per cent while specialist non-food retailers experienced little change.

The Retail Consortium urged the Government to take new measures to help the housing market and revive faltering confidence which, it warned, was holding back sales of higher-priced products 'severely'.

June trade figures also suggested that economic activity may be on the wane. Last month the current account deficit widened by almost pounds 100m to pounds 722m.

But both imports and exports dropped in terms of volume and value, which could point to weakening markets at home and abroad. Imports eased back by more than pounds 200m to pounds 9.76bn, suggesting that the recent build-up in stocks may be coming to an end. Exports fell more sharply, declining by more than pounds 300m to pounds 8.84bn, perhaps reflecting a weakening of overseas markets.

The current account deficit was arrived at after an assumed pounds 200m surplus in trade in invisibles - such as tourism, banking, shipping, insurance and earnings from abroad.

But figures for the latest three months, usually a better guide to the trend, have yet to indicate a weakening in economic activity. Excluding so-called erratic goods such as ships, aircraft, North Sea oil platforms, precious stones and silver, the volume of imports and exports stood at record levels.

In the three months to June, the volume of exports rose by 2 per cent while the volume of imports increased by 3 per cent. Official figures suggest that during the past several months the gap between export and import growth may have narrowed.

More worrying was the fact that the underlying trade deficit - which excludes trade in oil and erratic items - remained steady at pounds 1.17bn. This points to a potentially severe widening of the deficit when economic activity picks up.

New construction orders, meanwhile, underlined the severity of the property slump. In the three months to May orders slid by 16 per cent, to pounds 1.42bn, and were 9 per cent down on a year earlier. New orders for private housing dropped by 11 per cent in the latest three months while public housing and housing association orders plunged by 34 per cent.

Private industrial orders slumped by by 24 per cent and private commercial orders fell by 9 per cent.