Triple blow for economy underlines IMF fears for recovery

Retail sales falter, manufacturing is flat and public debt stays stubbornly high

The UK's tentative steps towards economic recovery were shaken yesterday by the worst slide in retail sales for a year, sluggish progress on cutting the deficit and a stagnant quarter for the nation's manufacturers.

The triple blow cast a grim backdrop to the International Monetary Fund's warning that the UK was "still a long way from a strong and sustainable recovery" as it called on the Chancellor to halt austerity plans for a year.

Although April's retail figures were hit by an earlier Easter, the 1.3 per cent fall in sales was far worse than expected in a brutal month for supermarkets, as cold weather depressed sales of barbecue food and garden furniture in particular, according to the Office for National Statistics.

The impact of wages trailing well behind the cost of living was also underlined by a 4.1 per cent fall in food sales, bringing the groceries bought by shoppers to the lowest level for almost a decade in volume terms, even as prices surge higher.

Rising food costs are still threatening household budgets despite the latest fall in inflation to 2.4 per cent – largely driven by lower petrol prices – and fuelling the rapid growth of discounters like Aldi and Lidl.

The Barclays economist Blerina Uruci said the figures were "consistent with anecdotal evidence over the past couple of years of a larger proportion of UK consumers shopping in cheaper brand supermarkets".

The retail figures came alongside the latest snapshot of the nation's fragile public finances which showed much less improvement than the headline fall in borrowing to £6.3bn suggested. Stripping out a myriad of one-offs, including the £28bn transfer of Royal Mail pension assets and profits from a Bank of England support scheme last year, as well as £3.9bn in interest transferred to the Treasury from the Bank's gilt holdings through quantitative easing – the underlying deficit was just £1bn lower than last year at £10.2bn.

Income tax takings rose 12.5 per cent compared to last year, although economists suspected that payments were deferred into the current financial year to take advantage of the Chancellor's tax cut for higher earners.

The Institute for Fiscal Studies' Rowena Crawford said: "Receipts in April will have been boosted by high-income individuals shifting income such as bonuses and special dividends from 2012-13 to 2013-14 in anticipation of the fall in the top rate of income tax from 50 per cent to 45 per cent."

The CBI's latest manufacturing figures added to the poor news, with flat growth in the three months to May, even though firms are optimistic of stronger growth in the months ahead.

Capital Economics' Samuel Tombs said the survey was consistent with manufacturing growth falling at an annual rate of 1 per cent, adding: "It remains hard to see how the export-reliant manufacturing sector can look forward to a sustained period of recovery."

Minutes of the Bank of England's latest meeting showed that the outgoing Governor, Sir Mervyn King, maintained his call for an extra £25bn boost to the economy in tandem with two other members, although he was outvoted by the wider committee.

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