Retail sales down by 0.8% in February

A gloomier-than-expected picture of the retail sector emerged today, fuelling fears over the strength of the wider recovery in the first quarter of the year.

Retail sales volumes fell by a larger-than-expected 0.8% last month, the Office for National Statistics (ONS) said, while January's growth was downwardly revised to 0.3% from an earlier estimate of 0.9%. The City had been expecting a 0.4% decline in February.

A recent fall in inflation from above 5% has eased the squeeze on household finances but today's figures, which also revealed a 0.4% drop in retail sales values in February, show consumers are still reluctant to spend.

Nida Ali, economic adviser to the Ernst & Young ITEM Club, said: "Today's retail figures don't bode well for GDP growth in the first quarter.

"The fundamentals underpinning consumer spending are still weak. Wage growth is sluggish, unemployment is on the rise and households are heavily indebted.".

The UK economy declined 0.2% in the final quarter of last year and after today's figures economists still estimate the country will narrowly avoid a recession in the first three months of 2012 with growth of around 0.1%.

The tax and spending watchdog, the Office for Budget Responsibility, yesterday forecast growth of 0.8% for the whole year, slightly higher than its last estimate of 0.7%.

A total £24.6 billion was spent in the retail sector last month, compared to £24.4 billion in January and £23.9 billion the previous year, the ONS said.

Food stores saw sales volumes drop 0.1% between January and February, despite customers stocking up on cupboard staples during snowfall and freezing temperatures at the beginning of the month.

Non-food stores fell 1.5% month-on-month, driven by a 1.2% drop in clothing and footwear sales.

The decline came despite continued evidence of heavy discounting among retailers, which helped cut the overall rate of consumer prices index inflation to 3.3% in February.

The other stores sector, which covers a range of products from carpets to rugs and toiletries to watches, fell 3%.

The ONS identified within that sub-sector particularly steep declines in specialised stores such as fine art dealers and antique retailers.

The downwardly revised volume figure for January, which had initially given some hope of a boost to the overall economy from the retail sector at the start of the year, was driven by a weak performance from smaller retailers.

Many small businesses submitted their survey results later, the ONS said, and they were worse than estimated.

The non-store retailing sector, which includes internet sales, also declined 0.4% in February.

Samuel Tombs, UK economist at Capital Economics, said February's retail sales figures leave the recovery on the high street looking "a bit more fragile than it previously seemed".

He said: "The retail sector looks unlikely to provide as much support to the overall recovery in the first quarter as it did in the fourth quarter."

PA