Retail sales bounce back, but long-term worries persist

Total retail sales by value up 4.5 per cent, but consumers 'still cautious'
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The Independent Online

Retail sales rebounded strongly in February after the exceptionally cold weather and the hike in VAT back to 17.5 per cent depressed high street activity at the start of the year.

The British Retail Consortium (BRC) said that total retail sales by value were up 4.5 per cent on this time last year, with about half of that accounted for by higher volumes and the rest from stronger pricing. Non-store sales, especially of non-food items over the internet, continued to demonstrate a strong secular trend upwards – 15.5 per cent higher than February 2009. They account for about 6 per cent of non-food sales.

However, food sales slowed further after shoppers stocked up during January's snow. Lower food inflation than had been seen last year and consumer caution also depressed sales. Non-food purchases were stronger than the average, again having been hit by January's snow, but against an especially weak base last year. Clothing and footwear showed improved gains than in January and homewares and furniture returned to growth.

The BRC also said that the cold conditions had encouraged consumers to stay at home to do their shopping; customers receiving catalogues whose delivery had been delayed in the post by snow also boosted activity, with purchases being pushed back from January to February. It added that some extended clearance sales, special offers and promotions helped, "though often at the expense of margins".

"Despite appearances, these results are not that strong," said Stephen Robertson, the director general of the BRC. "Consumer confidence is certainly up on this time last year but, with unemployment rising again, spending plans are falling. When the weather related distortions are stripped away, it's clear customers are still cautious."

The BRC's figures fit well into a pattern of gradually reviving consumer confidence and spending habits. The CBI's distributive trades survey published a few weeks ago also saw evidence of a revival. The latest survey of consumer sentiment, conducted by GfK NOP, suggests that confidence in "general economic conditions" and in households' own personal situation have both improved. However the "major purchase index" is not showing the same encouraging signs, suggesting that purchases of "big-ticket" items, such as household durables, will lag behind the wider recovery on the high street.

Howard Archer, the chief UK economist at Global Insight, said: "The upside for consumer spending – and hence overall economic growth – will be limited in 2010 as households still face very challenging conditions, notably including high unemployment that is likely to rise further, low earnings growth and high debt levels."

The retiring Bank of England policymaker Kate Barker has suggested that an extension of quantitative easing – the injection of money directly into the economy – may not be wise.