Retail sales plummet in January

Forecast fall in 2010 consumer spending fuels fears of double dip recession

The worst retail sales for more than a year and a half in January intensified fears over a double-dip recession yesterday, although the hike in VAT and heavy snowfall last month took its toll on consumer spending.

The Office for National Statistics said retail sales volumes, including petrol sales, tumbled by 1.8 per cent between December and January, the biggest fall since June 2008. The icy weather hit grocery sales, which fell by 2.4 per cent, as customers cut back on frequent trips to supermarkets. Sales volumes at non-food retailers flatlined.

Given that consumer spending accounts for more than two-thirds of UK gross domestic product, the dire retail data will spark further fears over the fragile health of the wider economy.

Howard Archer, the chief UK economist at IHS Global Insight, said: "Weak retail sales in January reinforce concerns that the UK economy could suffer a 'double dip' in the early months of 2010 after only crawling out of recession in the fourth quarter of 2009 as some of the temporary factors that have been supporting activity are removed – notably the cut in VAT from 17.5 per cent to 15 per cent and the car scrappage scheme, which will end by March."

Retail sales by value, including price inflation, fell by 1.3 per cent between December and January, said ONS.

By sales volumes, the worst performers were retailers of household goods, which suffered a 13.4 per cent slump last month – the steepest fall since 1988.

However, not all retailers had a dire January and the volume of retail sales actually rose by 0.9 per cent compared with the same month in 2009. Sales by value climbed by 3.2 per cent year on year, boosted by price rises.

Non-specialist general merchandise retailers grew sales volumes by 5.1 per cent between December and January. Textile, clothing and footwear retailers also celebrated after fashioning a 4.7 per cent uplift last month, boosted by strong demand for winterwear.

Richard Lowe, the head of retail and wholesale at Barclays, said: "Retailers of clothing saw sales volumes surge, as prices fell and appetite remained strong for winter lines." However, the overall outlook for 2010 is far from rosy. Retail experts at Deloitte, the accountancy firm, forecast that total retail spending will fall by about 1.5 per cent this year.

Richard Hyman, strategic retail adviser to Deloitte, said: "The heavy snowfall which swept across most parts of the country last month will have deterred people from hitting the high street. However, the weather will not be the only reason retailers feel a chill in 2010."

He added: "Consumer spending held up surprisingly well in 2009 but the signals are less encouraging this year. Income taxes and national insurance will rise and following the general election, the next government will have the task of tackling public debt. This is likely to include a mix of spending cuts and increased taxes and it is difficult to imagine the consumer not being hit in some way or other."

Mr Hyman also said that the ONS sales data is somewhat misleading because it based on a sample of retailers, many of whom have been boosted by about £9bn revenues from defunct retailers that have vanished from the high street, such as Woolworths. If this £9bn is stripped out of the sector, actual retail spend is growing more slowly than the data suggests and "may even be contracting at this point".

Excluding fuel, sales volumes fell by 0.6 per cent in January and on a value basis by 1.2 per cent, said ONS.