Slumping High Street sales and halting progress in cutting the deficit dampened hopes of green shoots for the British economy today.
The gloom came as the International Monetary Fund warned Chancellor George Osborne that the UK was “still a long way from a strong and sustainable recovery”, sending the pound tumbling against the dollar.
Retail sales suffered their biggest monthly fall for a year in April, slipping 1.3% as cold weather hit sales of barbecue food and garden furniture, the Office for National Statistics said.
Although the sales were also affected by the timing of Easter, shoppers remain under pressure from wages trailing the cost of living.
HSBC’s chief UK economist, Simon Wells, said: “It seems that every time an upward trend in sales volumes seems to emerge, it is quickly snuffed out. While disappointing, today’s data are a reminder that despite some positive output indicators, the ongoing squeeze on incomes means there is a limit to how quickly growth can pick up.”
Despite a better than expected fall in the deficit to £6.3 billion, April’s figures showed much less of an improvement when a myriad of one-offs are stripped out.
These include the transfer of Royal Mail pension scheme assets and profits from a Bank of England support scheme last year, as well as £3.9 billion in proceeds from the Bank’s quantitative easing efforts this year — all of which flatter the public finances.
Discounting these the underlying deficit was just £1 billion lower than last year at £10.2 billon.
RBS economist Ross Walker said: “The UK’s deficit-reduction process has stalled once the various one-off transfers and favourable accounting adjustments are stripped out.”
The CBI’s latest manufacturing figures added to the poor news with growth flat in the three months to May, disappointing hopes for a stronger recovery. Capital Economics’ Samuel Tombs said: “It remains hard to see how the export-reliant manufacturing sector can look forward to a sustained period of recovery.”
Minutes of the Bank of England’s latest meeting meanwhile showed Governor Sir Mervyn King maintaining his call for an extra £25 billion boost to the economy in tandem with two other members, although he was outvoted by the wider committee.