Retail sales fall as stores suffer World Cup hangover

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The Independent Online

A slump in sales of flat-screen televisions after the end of the World Cup sent retail sales into reverse last month for the first time since January, casting doubt over whether the recent pick-up the high street is sustainable.

The surprise 0.3 per cent fall in the volume of goods passing through shop tills in July compared with the previous month reflected a 3.4 per cent drop in sales at household goods stores after electrical goods sales dropped sharply. At one point in the run-up to the football tournament Currys was selling a television every 15 seconds, a feat analysts warned could not last.

The pound hit a two-week low against the euro and government bond prices after the City bet against the prospect of another imminent interest rate rise, especially as June's 0.9 per cent monthly increase was revised down to 0.7 per cent.

Vicky Redwood, UK economist at Capital Economics, said: "The fall in retail sales suggests that another near-term rate hike is not yet guaranteed."

Despite last month's fall, the Office for National Statistics described retail sales as "robust", given that quarterly growth of 1.8 per cent over the previous three months was the strongest outcome since March 2004. The annual growth rate picked up to 4 per cent from 3.6 per cent in June.

Once again, food retailers had another good month, benefiting from the "barbecue effect" of the hottest July on record. Food store sales rose 0.4 per cent compared with June, while the three-month growth rate was 3.2 per cent, making it the best quarter for supermarkets since early 2005.

A double boost from summer sunshine and sales lifted monthly sales for clothing retailers by 1.5 per cent in July. This week's inflation figures showed that clothes shops slashed their prices after delaying their sales until July after a wet start to the summer. The annual retail sales deflator edged higher at 0.5 per cent in July from 0.4 per cent in June, although this still meant the level of price discounting was less than in recent years.

Tim Sleep, director of retail at Ernst & Young, said: "Retailers may be shifting their end-of-season stock but as ever, only at the expense of profit margins. Looking ahead, the retail climate remains tough amid shaky consumer confidence ... and the impact of the renewed terrorist threat."

Richard Lowe, retail director at Barclays, warned that shops in the capital would suffer from lower tourist numbers after last weeks foiling of an alleged airline bomb plot.

Ross Walker, at Royal Bank of Scotland, said further moderation in the underlying growth rate "seems inevitable" given the impact of the quarter-point base rate rise and further post-World Cup spending adjustments. A November rate increase looked "less likely", he added, given that weaker consumer spending could cast doubt on the Bank of England's central projection for an acceleration in GDP in the third quarter.

On Wednesday, the minutes of the Bank's latest rate-setting meeting showed that the Monetary Policy Committee felt there was a "reduced risk of any prolonged slowdown in consumer spending".

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