Olympics casts cloud over shops and UK economy

Britain had its share of winners this summer but the high street was not among them

The Olympics may have lifted the country but not, it seems, the crucial retail sector. Sales in Britain's shops, excluding petrol, fell 0.3 per cent in August, the Office for National Statistics (ONS) has said. This was roughly in line with most analysts' forecasts, but nevertheless is yet another sign of Britain's current economic woes.

Big-ticket items seem to have felt the brunt of the Olympics as shoppers stayed at home, with household goods shop sales falling 2.7 per cent on the month. Department stores also suffered a hefty sales drop of 0.7 per cent. But this was nothing compared to the fall in online retail sales of 6.7 per cent, with people choosing to watch the Olympics on television rather than surf the net and make impulse buys.

Howard Archer, the chief economist at IHS Global Insight, said: "It is evident that online sales in particular were hit appreciably as people watched the Games rather than shop. It is also likely that shopping footfall suffered to some extent overall from the Olympics."

But there was some cheer for retailers. The Olympic spirit seems to have prompted Britons to hit the sports retailers. Data from the card payment firm Visa showed spending at sport stores up more than 20 per cent year on year during August.

Suspension of the Sunday trading laws during the Olympics, combined with a greater proportion of people eating at home to catch the Games action on TV, was a boon for supermarkets. Food sales were up 1 per cent during the month, with larger store food sales 2 per cent up, although smaller stores were 4.5 per cent down, according to the ONS.

But more than the Olympics was at play in August, as it seems retailers reversed previous price cuts, and as a result suffered at the tills.

Nida Ali, the economic adviser to the Ernst & Young Item Club, said: "There may well be an Olympics effect at play, with consumers temporarily distracted by events in east London. But it was also noticeable that the heavy discounting, which had supported sales volumes in previous few months, gave way to price rises in August."

News of a poor month on the high street will add to gloom surrounding the prospects of the economy bouncing back from recession in the third quarter. And it comes on the back of poor purchasing management data for the consumer sector last week.

However, it is not all bad news, with the CBI's monthly industrial trends survey showing that the total order book balance rose this month to minus eight from minus 21 in August, above expectations of a reading of minus 15. Exports are also improving. The order book balance rose to minus 10 from minus 17. Anna Leach, the CBI's head of economic analysis, said: "Domestic and overseas demand have improved in this survey following last month's falls, providing a foundation for somewhat better output growth expectations."

Nevertheless, the Institute of Chartered Accountants in England and Wales (ICAEW) predicted in its first annual forecast of the UK economy that it will contract by 0.5 per cent in 2012. What is more, the ICAEW says recovery will be slow in 2013, with it forecasting growth of just 0.9 per cent.

Ocado blames Games and Jubilee weekend for slowdown in sales growth

The online grocer Ocado has blamed the Olympics and Jubilee for a slowdown in its sales growth, leading to renewed questions about its long-term prospects.

The internet specialist, which largely delivers Waitrose groceries, suggested it had lost some sales growth due to unexpected trading patterns during the Olympics in the last quarter However, it said the impact of the Games was less clear than the up to 1.5 per cent of revenues it lost around the long Jubilee weekend.

Ocado's chief executive, Tim Steiner, said: "With the Olympics, one week we were up more than expected and one week we were down." He added: "The market is very competitive and there has been unprecedented vouchering activity. We have not stepped up the couponing activity in order to maintain margin and profitability."

Ocado delivered sales growth of 9.9 per cent to £162.6m over the 12 weeks to 5 August, which was lower than City expectations and behind a rise of 12 per cent in the first half.

While Ocado said it was "targeting an increase in sales growth" in its fourth quarter, some City analysts described its performance as "disappointing" and cut forecasts for underlying profits for this financial year by £2m to £35m. Shares in Ocado fell by 2.8p to 64.4p yesterday, leaving them nearly two-thirds lower than its float price of 180p in July 2010.

James Thompson