High street spending unexpectedly stalled last month, fuelling speculation that the consumer boom has come to a grinding halt.
Retail sales enjoyed no growth between May and June, for the first time in 14 months. This left annual growth at 5.6 per cent compared with 6.5 per cent in the previous month. However, prices rose 1.5 per cent, the fastest rate of increase since the summer of 1998, while the value of sales were 6.9 per cent ahead. This would imply shops are hiking prices to take advantage of strong demand.
The weak volume figure surprised City analysts, who had expected modest growth following May's 0.8 per cent, a four-year high. While some economists said this was further evidence the consumer economy was running out of stream, others said it was too early to draw firm conclusions. Daniel Kaye, UK economist at the consultancy Capital Economics, said: "While retail sales hardly collapsed, these numbers represent the first slight chink in the consumer armour." Figures on Thursday showed new consumer loans had fallen by 11 per cent while growth in credit spending halved. But other economists pointed out that June's weak performance had followed two very strong months, leaving a three-monthly average of 6.1 per cent, the highest since 1988.
Simon Rubinsohn, chief economist at the stockbroker Gerrard, said this growth was in line with falling unemployment and rising house prices. "Against that background there is scant chance of a further interest rate cut in the near term," he said.
Yesterday's figure may simply add to the dilemma the Monetary Policy Committee faces in deciding whether to cut rates to bolster a manufacturing sector in recession, but with a risk of stimulating a consumer boom.
Danny Gabay, UK economist at JP Morgan, said it was difficult to discern whether retailers were raising prices to take advantage of strong demand or had simply delayed the start of their sales. "Which of these competing theories proves to be correct will only become apparent over time but it does, of course, go to the heart of the rate debate."
There was further gloom on continental Europe where industrial production dropped in May, falling into negative territory for the first time this year. Output in the 12-nation eurozone fell 0.1 per cent annually against forecasts of a 1.1 per cent rise. The decline was led by a sharp decrease in durable consumer goods, which fell 5.1 per cent.
Meanwhile, personal computer makers shipped fewer units globally during the second quarter, the first such decline since 1986, as slowing economic growth worldwide hurt sales, researchers said. Second-quarter PC sales fell 1.9 per cent from a year earlier to 30.4 million units, the analysts Dataquest said.Reuse content