High street sales flatline as shoppers feel inflation

Cash-strapped British shoppers continued to be squeezed last month as retail prices soared, derailing growth in sales, according to official figures, and experts said yesterday that consumer struggles are "far from over".

Retail sales volumes in July were flat compared with a year earlier, yet prices were up by 4.4 per cent, the highest for three years, according to the latest figures released by the Office for National Statistics. The measure that stripped out petrol prices showed price rises of 3.1 per cent, the largest year-on-year rise since 1995.

Stephen Robertson, the director general of the British Retail Consortium (BRC), said top-line growth was driven by rising inflation and the increase in VAT to 20 per cent in January, saying consumers had bought the same amount of goods but spent more. He said the situation was "painful" as economic pressures continued to weigh on retailers and consumers. "Customers' ability to spend is being squeezed by rising costs, particularly utilities and low wage rises," he added.

Consumer spending makes up two-thirds of the UK economy, with retail sales at about 40 per cent of that. Shehan Mohamed, an economist at the Centre for Economics and Business Research, predicted: "The remainder of 2011 and much of 2012 will be fraught with difficulties for the UK's retailers. The consumer is looking for value as disposable incomes remain constrained and credit is scarce."

Household-goods stores were particularly badly hit, with sales volumes tumbling 4.1 per cent in July, the sixth-consecutive month that the sector has suffered a decline. Clothing stores also remained under pressure. While the volume of sales at large stores fell almost 2 per cent, the UK's smaller household businesses bore the brunt of the decline, falling over 8 per cent. Nida Ali, an economic adviser to the Ernst & Young Item Club, said the unexpected rise in unemployment added more uncertainty for consumer spending. "It's difficult to make a case for any significant improvement in conditions just yet, so the retail sector is likely to face a tough time of it over the second half of the year," she said.