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Figures rise but retail sales struggle

The struggle on the high street was underlined today as official figures revealed a greater-than-expected slowdown in retail sales.

Retail sales volumes increased month-on-month by 0.2% in July, compared to a revised 0.8% boost in June, the Office for National Statistics (ONS) said. Economists had expected a 0.4% rise.

Household good stores, clothing and footwear shops, and non-store retailing, which includes internet and mail order sales, all suffered as cash-strapped consumers reined in their spending.

The retail sector has suffered at the hands of a squeeze on household budgets - driven by muted wage growth and high inflation, which was 4.4% in July, up from 4.2% the previous month.

Retailers have had a torrid year with the likes of fashion chain Jane Norman, interior designer Habitat and wine merchant Oddbins falling into administration, while Mothercare, entertainment group HMV and chocolatier Thorntons have all announced store closures.

The ONS said there was evidence that retailers had brought in their summer sales earlier than usual, in May or June, to entice frugal shoppers.

But there was not enough evidence to suggest chains had dragged the sales season on in July as volumes suffered, the ONS added.

Clothing and footwear stores posted a 0.3% drop in sales volumes between June and July, while household goods stores also saw a 0.3% decrease.

Household goods stores, such as Comet, have been among the worst-hit retailers during the spending squeeze as consumers forego purchases of big-ticket items such as fridges, TVs and cookers.

Non-store retailing, which includes internet, mail order and market stall sales, saw sales volumes drop 0.9% month-on-month.

The sub-sector has seen strong growth over the year - with volumes up 16.9% compared to July 2010 - and the ONS put the drop-off in volumes down to a particularly strong performance in June.

Internet and mail order shopping is generally cheaper and consumers have more control over their total spend, as the temptation of impulse purchases is removed, the ONS added.

Internet sales in July amounted to £523.4 million, compared to £395.8 million in the same month last year.

Food stores propped up overall sales volumes in the period, with growth of 0.7% as supermarkets slashed prices to boost trade.

Elsewhere, sales volumes were flat compared to July last year, while sales values increase 0.8% month-on-month and 4.3% year-on-year.

Chris Williamson, chief economist at financial services information company Markit, said weak spending in the third quarter heightened the risk of a double-dip recession.

He said: "People are worried about job security, and incomes are being squeezed by higher prices. After inflation, real take-home pay is falling by over 2% per annum."

He added: "With consumer spending accounting for around two-thirds of the economy, the weak retail sales data suggest that economic growth remained very subdued at the start of the third quarter and highlight how close the UK economy is to sliding back into recession."

Samuel Tombs, UK economist at Capital Economics, said any growth was a relief given the squeeze on household incomes.

But he added: "Looking ahead, we doubt that retail sales will continue to rise given the recent sharp falls in consumer confidence, increases in unemployment and intensifying squeeze on consumers' real incomes."