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Business News

New term boost for consumer spending

Back-to-school purchases of laptops and gadgets gave an unexpected boost to retailers last month but failed to ease fears over the sector in the run-up to Christmas.

Retail volumes in September grew 0.6% month-on-month, following a downwardly revised 0.4% drop in August, the Office for National Statistics (ONS) said. Economists had forecast flat sales.

But quarterly figures, which the ONS said provide a clearer insight into the health of the sector, showed sales were down 0.2% as clothing and food trade tumbled over the three-month period.

Stephen Robertson, British Retail Consortium director general, said: "Christmas has always been the most important time for retail but this year is going to be particularly critical as businesses look to make up lost ground."

Retailers have provided a mixed picture this week, with Debenhams unveiling a major stores expansion plan after reporting a 10% rise in profits, while Argos saw its half-year profits slide 94% as sales of TVs and video games tumbled.

Household goods stores grew 3.2% month-on-month in September, the strongest growth in 19 months, which the ONS said was down to the start of the academic year.

The unseasonal weather at the end of the month took its toll on the clothing sector, which saw a 0.7% drop in sales month on month, but the heatwave did not have the expected positive impact on food.

The improved September figures will be a slight boost to recovery hopes, as retail constitutes a significant proportion of the country's powerhouse services sector.

But the broader three-month picture is still bleak as the retail sector feels the force of the consumer spending squeeze, triggered by high prices, muted wage growth and rising unemployment.

The ONS said the drop in volumes in riot-hit August was worse than expected, after methodological changes saw the figure downgraded to a 0.4% fall, from a first estimate of a 0.2% decline.

Howard Archer, chief UK and European economist, said: "Despite September's surprisingly decent retail sales growth, it is hard to be optimistic about the prospects for consumer spending.

"Sharply squeezed purchasing power, mounting unemployment, depressed confidence and a moribund housing market are likely to cause consumers to keep their hands in their pockets."

Department stores, such as Debenhams and John Lewis, saw growth of 1.4% in September, driven by back-to-school and university purchases, but also by strong music and video-game sales.

Second-hand stores, which can include charity shops and antique dealers, also had a large upward effect, as well as telecoms and stationery.

Food sales were unexpectedly flat as the 28C-plus temperatures at the end of the month had little effect, the ONS said.

But within the food figures the ONS said there was evidence that smaller stores were showing better volume growth than larger stores.

The ONS said additional analysis of petrol forecourt sales showed pump sales rose 17% by value compared to a year ago, while volumes increased only 2.8%, suggesting huge price hikes.

Looking further back, petrol sales have increased 32% by value since 2006, but dropped 10% in volume.

The combined fuel and food figures add to evidence that shoppers are no longer driving to larger supermarkets and are favouring their local, smaller supermarkets or grocers instead.