Retail sales rise again but consumer spending begins to show weakness

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Consumer caution led to lower-than-expected sales on the high street in March, despite the boost to trading from the first days of the Easter bank holiday.

The Office for National Statistics (ONS) said food and most non-food retailers enjoyed an uplift in sales, but textile, clothing and footwear chains suffered a dismal month.

Retail sales volumes rose by a lacklustre 0.4 per cent for the period from 28 February to 3 April on the previous month this year, which was less than the 0.8 per cent the City had expected.

Howard Archer, the chief UK economist at IHS Global Insight, said: "March's disappointing growth in retail sales fuels our suspicion that the upside for consumer spending – and hence overall economic growth – will be limited in 2010 as households still face very challenging conditions."

Economists have warned that the subdued retail data over the first three months of this year, which was not helped by January's snow, could affect the GDP figures for the first quarter, which will be unveiled today. They expect the UK economy to have grown by 0.4 per cent.

Mr Archer said: "The challenging conditions facing consumers notably include high unemployment and still-falling employment, low underlying earnings growth, elevated debt levels, and January's value-added tax hike."

Sales by value, which include price rises, grew by 0.9 per cent between the February and March period.

Mr Archer said: "There are still serious concerns about the economic outlook and jobs are likely to maintain many consumers' desire to improve their personal finances. Consumers will also be wary that further out they are very likely to face higher taxes as part of the further major corrective action that will be needed to rein in the government finances.

"At least, though, the Bank of England seems unlikely to raise interest rates any time soon, so low mortgage rates should continue to support consumers' purchasing power."

Between February and March, food stores had increased sales volumes by 0.1 per cent. Given falling food price inflation, the ONS data chimes with lower sales growth delivered by the UK's biggest supermarkets this year. The star performer over the period were non-specialised stores, such as variety retailers, where volumes jumped by 1.5 per cent. But textile, clothing and footwear retailers had a month to forget, with sales volumes falling by 1.1 per cent.

On a year-on-year basis, the volume of retail sales rose by 2.2 per cent over the five weeks to 3 April and by value sales were up by 4.4 per cent, boosted by price increases.

Richard Lowe, the head of retail and wholesale at Barclays Corporate, said: "Following a volatile start to the year, March's figures offer hope that a more stable landscape is emerging in the retail sector, with retail sales volumes up both month-on-month and year-on-year, broadly in line with expectations.

He added: "Retailers will be keeping a close eye on consumer confidence following its recent reported dip. However, at present, sales are not declining with confidence levels, despite rising unemployment and increasing inflationary pressure on household incomes. As the nation prepares to go to the polls, retailers will be hoping for the extension of various economic stimulus measures currently in place, particularly the historically low base rate."

On the front line

* Kate Swann, the chief executive of the book and stationery chain WHSmith, has delivered another rise in profits but the short-term outlook for the high street was "uncertain". For the six months ended 28 February, WHSmith posted a 2 per cent uplift in pre-tax profits to £62m, driven by an uplift in gross margins as it completed its move away from selling music and computer games.

* The sports equipment retailer Sports Direct has said it is on track to hit full-year underlying earnings of at least £160m and that sales in its latest nine- week trading period were up 2.9 per cent. Dave Forsey, the chief executive, said: "We look forward to a successful World Cup both on and off the field."

* The fashion retail group Alexon sank to a pre-tax loss before exceptional items of £900,000 in its full year to 30 January but remained bullish about accelerating its turnaround plan. Total sales at the group, which operates the Ann Harvey, Eastex and Dash brands, fell by 13.6 per cent to £153.4m.