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Business News

Surprise as retail sales fall 0.7%


The high street suffered a slump in October as official figures showed a surprise 0.7% fall in retail sales compared with the previous month.

Price increases slowed but it was not enough to prevent the decline in volumes. It was a worse than expected performance, as analysts had been expecting sales to be flat, stoking fears that retail will drag down overall growth for the economy in the current quarter.

The disappointing data appear to reflect comments by fashion retailers such as Topshop owner Arcadia and New Look that sales of winter clothing ranges were hit by a mild start to the autumn.

The figures from the Office for National Statistics (ONS) showed non-food sales falling 1.3% by volume.

Within this, textile, clothing and footwear stores saw volumes drop by 2.8%. Household goods stores saw a 1.2% fall, despite the pick-up in the housing market.

Department stores improved by 1.3% but retailers have previously said that sales over the period were flattered by Eid falling in October rather than November, drawing Middle East customers.

Supermarkets recorded a third month of decline, slipping by 0.1%, as the memory of a barbecue-fuelled summer splurge faded into the distance.

The decline in retail sales came despite the annual rise in the price of retail goods slowing from 0.9% in September to 0.7% in October.

Jeremy Cook, chief economist at currency broker World First, said: "The major factor is clearly the impact of falling real wages."

Recent figures showed that inflation fell sharply to 2.2% in October, but wage growth is still struggling, with average earnings in the year to September up just 0.7%.

Howard Archer of IHS Global Insight, said: "Even allowing for mild weather hitting clothing sales, the 0.7% drop in retail sales in October indicates that consumers are taking at least a temporary breather in their expenditure after spending at a robust rate during the third quarter.

"This fuels our suspicion that GDP growth may actually edge back to 0.7% quarter-on-quarter in the fourth quarter from the robust 0.8% quarter-on-quarter expansion seen in the third quarter."

Martin Beck of Capital Economics said: "Overall, with recent data showing a robust labour market and October's faster than expected fall in inflation easing the squeeze on real earnings, the fall in sales volumes in that month is hopefully a temporary blip.

"But the consumer recovery remains a fragile one."

Chris Williamson, chief economist at Markit, said fears of rising interest rates hitting borrowing costs could also be hitting consumers' spending appetites.