Heat goes out of the recovery with drop in retail sales

 

Unseasonably warm weather depressed retail sales last month, taking some steam out of the recovery, official figures showed yesterday.

The Office for National Statistics said sales were down  0.3 per cent by volume in September – worse than analysts’ expectations of a 0.1 per cent decline. The ONS said the Indian summer had caused shoppers to delay purchases of autumn and winter clothing.

There was also evidence of the supermarket price war intensifying, with prices at food stores falling 0.3 per cent year on year, the largest decline since December 2004. Overall retail prices were down 1.4 per cent, with the largest contribution coming from a 5.4 per cent drop in fuel prices.

The three-month growth rate for retail sales was still positive, rising by 0.3 per cent, but this was the weakest rate registered this year, adding to the impression the economy slowed in the third quarter of the year. Retail sales account for around a fifth of GDP.

The ONS will today publish its preliminary estimate for GDP growth in the third quarter, with analysts expecting it to have moderated to 0.7 per cent after the second quarter’s 0.9 per cent expansion.

But some analysts remained bullish about the retail sector.  “With consumer confidence strong, employment growth likely to pick up again and easing inflation set to boost real incomes, we are not concerned that September’s drop in sales is a sign of weakness to come,” said Maeve Johnston of Capital Economics.

The deputy governor of the Bank of England, Ben Broadbent, said in a speech yesterday that interest rates are likely to remain low “for some time yet”. He said that as global impediments to growth dissipated, rates would rise in a “limited and gradual” way, but added that this would depend on renewed optimism about global productivity or a lasting solution to the problems of the eurozone.

The Bank’s Monetary Policy Committee voted by a margin of 7-2 earlier this month to keep the base rate on hold at 0.5 per cent. Markets have pushed back their  estimate of when the first 0.25 percentage-point rise will come to the middle of next year

The beleaguered eurozone economy perked up modestly in October, according to the latest survey snapshot. The composite purchasing managers’ index (PMI) rose to 52.2 in the month, higher than September’s 10-month low of 52 and above the 50 mark that signals growth. However, economists pointed to continued economic weakness in the single-currency bloc, which accounts for around half of Britain’s exports.

According to a survey by the CBI, released yesterday, UK factory export orders in the three months to October fell to their lowest level since the start of last year.

Comments